Armac Locação, Logística e Serviços S.A. (ARML3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to AMA's conference call to discuss results regarding the second quarter 2026. This video conference is being recorded, and the replay can be accessed on the company's website, ri.armak.com.br. The presentation is also available for download on the platform. We would like to inform you that the presentation is being recorded and translated simultaneously. [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 and 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 Mr. Marcos Pinheiro, CFO and Investor Relations Officer. Now I would like to give the floor to you, Mr. Fernando Aragao. Please, Mr. Fernando Aragao, you may proceed.

Good morning, everyone. Thank you very much for attending our conference call. I'm going to give an introduction using 2 slides before turning over to Marcos. Armac is a history of growth, in particular, when my brother Jose and I joined my father to become entrepreneurs in 2012. As you can see on the graph, we are lucky enough to be exposed to sectors and demands, which are very important to Brazil. Infrastructure, which is very poor in Brazil. We are present in most states in the country. And on a daily basis, we face the bottlenecks of structure in Brazil. And this is a segment we are exposed to in Brazil. And regardless of the government in power for the population to have opportunities, dignity and improve their lives. There's a lot of structure still to be built. We don't know how this is going to happen, but Armac is an enabler of this construction. Originally, when we started operating in the sector, we identified that for the equipment to be acquired for this structure, it would become ever more expensive than if a major rental company would be there and would share the equipment among different construction works. This is part of the accelerated growth that we have experienced, which is also likely to persist along the years. Another side is related to the movement that we had in 2015 when we went after recurring revenue from clients that use bulk products. Brazil is one of the largest producers of mineral and agricultural bulk products in the world. And they demand a yellow line equipment in order to operate. Today, we are very proud to be present in all ports which are relevant to Brazil in the north and also to the Rio Grande port, and we are working with fertilizers, soybeans. And we are strongly present in biomass, both in industry that burn wood and in the fields of sugar and alcohol and also in the mining sector, not in the mining activity specifically, but related to movement of products that use average size equipment. In addition to the need for infrastructure, we are exposed to exporters with a recurring and resilient demand. And we also enabler of all those activities offering competitive prices and specific products and services. This is the context that when made us look for capital in the market in 2019. We have the private equity fund. And in 2021, we had IPO in order to master the sector. Our activity is an intensive capital activity, which is not regulated and the equipment is the same for all competitors. So the main entry barrier, we always believe that is related to scale. Predominant scale will lead to differentiated returns in the long term. And this is the reason why as of 2019, 2020, we started a very accelerated expansion cycle in order to occupy the empty spaces in the yellow lines and forklift and become a dominant player with a scale which is multiple times bigger than the second player. We believe that this scale created a platform that will generate value to the shareholder in the long term. The fruits will start to be gathered because the competitive advantages in relation to the competitors is very significant. This graph shows the growth history. We started in 2021, the revenues from asset sales that use a strategy or the need for the assets, we were able to develop this channel in a very strong way. The point is that the growth of the company was very accelerated for an intensive capital company. This growth because the growth was so accelerated and somehow sudden, during the process, the company was so subsegmented. What do I mean by that? -- had a strategy that we adopted. We went after a sector with recurring revenue so that we could be protected by the volatility that we see in Brazil. Therefore, in order to go to those recurring revenue streams, we expose ourselves to different economic sectors with different needs from the clients. Many services were customized in order for us to operate in different segments. And I believe that this was the right strategy because all the entrants of the sector that did not follow this path faced a lot of difficulties. So we had a unique operation in infrastructure. But when we segmented the company, we managed distinct aspect without the correct visibility of the return that each business vertical was bringing. And everybody knows the cost of all this, our margin deteriorated and also the returns deteriorated. And the correction of the strategy of management started in 2024 when we implemented a new RP, and we had a new budget for the company, bottom up, looking at every agreement, every contract. We studied every vertical, and we conducted a deep planning study in order to know what we would have to do to win in each segment. And in 2024, we brought new leadership to those verticals that would be appropriate to each challenge. The point is that the company is currently segmented in 4 verticals, all of them with high growth potential and that they have -- they share synergies from the scale of our Mac, all the 4 verticals. Could we move on to the next slide, please? So all the 4 verticals are favored. They purchase machines from the same equipment suppliers, manufacturers, and these are suppliers with whom we have a very long relationship. and we are their best purchaser, not only in Brazil, but also in Latin America, America for most of them for recurring services, rental for fift and Tam, they all use equipment from the same manufacturers, parts that came from the same OEM component manufacturers, technicians who have the same training. They also use the same system that are not developed along the years in order to perform maintenance services. So there are many synergies involved. And this platform with 4 verticals have very distinct economics. And today, they have independent leaderships with autonomy in order to run their different and distinct strategies. In relation to the verticals, the largest is the recurring services vertical. I analyze the results of each of them in the second quarter in order to provide the visibility of the challenges and the magnitude of each one. Recurring services has a gross revenue of more than BRL 1 billion with a backlog of contracts of about BRL 2 billion now. So this is a vertical where several reorganization movements took place, more than 600 agreements, more than 600 P&Ls managed with autonomy by managers. They may be managers or coordinators, and they are responsible for the financial results, and they have enough autonomy to do whatever it takes to keep the client happy and provide healthy operation for the shareholder of AMA. The 600 managers along 2 years turn around the result of many of the agreements and most of them have an NPS that has been growing a lot. The EBITDA margin of recurring service reached 57% this quarter. And this makes us very happy, very proud, showing that we are on the right track for a long-term journey for the company, 2 years would be little. But I still believe we still have a lot to improve as other initiatives will generate results. This recurring service has a return on invested capital of 17% in the second quarter, so it's a very attractive return, especially when we consider the size of potential growth of this unit and how much the result can improve along the time and initiatives such as better management of the fleet. We didn't have a structure of asset sales, but now we do. And by far, it's the best in the sector, and it can manage and sell the right asset at the right time. The second vertical, which is rental is the one which is closer to our American peers that -- such as United Rental and Ash Group and that rent equipment for short terms for infrastructure activity and also construction works. It employs lower than million on an annualized basis, considering the asset sales and the EBITDA margin was 56% in the second quarter. And as we see it, it's much lower than the potential that it has, considering that these are activities with dedicated labor. The EBITDA margin tends to grow a lot as we apply initiatives which are similar that we applied in recurring services. The ROIC is very low still. But we believe this is going to be something temporary. And why is that? The company spent many years segmented using a consolidated number without having accuracy of what each unit of return would come from. And now we have this accuracy in all workshops of the company, all the branches, all the cars, all the the personnel, they are allocated in the units where they are used. So from now on, we will be able to make a very assertive management of the resources that the company uses, and we will do the pricing as accurate as possible. And there is a special leader in the company to do that together with me. So we have confidence that the results are going to improve. And we also understand that this is going to be used in Brazil by far is the largest addressable market in Brazil. As to forklifts, it's a vertical that has been growing a lot. The gross revenue is BRL 270 million per year approximately with an EBITDA margin, which is quite relevant of 55% and a very, very favorable return. And the thesis is a growth thesis by consolidation. We have an internal formula that has been developed. We had 3 M&As in this vertical. All of them successfully integrated without any -- practically no losses of clients in the process, and we also maintain the personnel of the team. So we have a formula that we hope to apply in more than dozens of initiatives along the years. We will consolidate the forklift segment. We believe we already have enough scale to allow us differentiated returns and management that would add value. Tegan is managed by one of the owner, and we use the synergies that Tegan has with our Max system, and we would place our bets there. First, we are looking at the tax reform that will bring lots of benefits to the Northeast and Brazil, where Tegan has enough intelligence in order to find what's the best earthworks activity. And this is going to be done in the short term. And so the tax reform will be very favorable to Tan and also e-commerce when there is a competition for large logistic warehouse that would sustain the growth for a long time. Another favorable wind are the data centers. And this is a company that we believe will grow a lot in the future. In the consolidated terms, Armac has been improving its results. It has a growth potential, which is quite extensive, and we are going to explore in the next months in a very responsible manner without accelerated the growth rate that we saw in the past because the dominance has already been built. So the shareholders from the future, they can expect a company that is managed with a lot of professionalism with a lot of accountability, P&L managers, right strategy for each vertical and each business unit and a growth that is consistent, high for Brazilian standards, but long-lasting. So after this introduction, I will turn the floor to Marcos Pinheiro for him to discuss the financial results of the quarter.

Thank you, Fernando. Good morning, everyone. Thank you for attending our 2026 second quarter earnings conference call. Q2 2026 was a quarter of consistent and sustainable growth for AMA. We delivered revenue growth, margin growth and disciplined capital allocation. As to the highlights of 2026, we'll start with the key figures for the quarter. Gross revenue reached BRL 586.2 million, a growth of 19.3% when compared to the second quarter of 2025. Gross rental revenue reached BRL 441 million, a 7.7% increase year-over-year. Revenue from asset sales was BRL 145.2 million, almost double that of Q2 2025, but still far from its potential given the ramp-up of stores and the extensive and fragmented market. EBITDA from leasing and services was BRL 270 million, a significant growth of 37.1% compared to the same period of the previous year. Over the past 12 months, adjusted EBITDA exceeded BRL 880 million. At the same time, we kept leverage under control. Our extended net debt-to-EBITDA ratio, which considers the risk of defaults and prepayments stood at 2.6x, a leverage ratio significantly lower than in Q2 2025. When compared to last year, as I said, the second message is clear. We grew, we expanded profitability, and we maintained financial discipline. Moving on to Slide CapEx. In the quarter, organic CapEx was approximately BRL 459 million and year-to-date, BRL 694 million. The most notable point here as explored in more detail in our release is that this CapEx, only BRL 260 million had a cash effect. This characteristic is the result of agreements signed with our main machine suppliers in which due to our scale and strategic importance, we have gained the benefit of operating with flexible payment terms aligned with the performance of our operations. Furthermore, machine acquisitions gained more momentum in the quarter, precisely to take advantage of this competitive advantage. And in addition to managing the average age of the fleet and adjust our machine mix, especially in the vertical of rental. This acceleration of investments leads to a temporary increase in our fleet since all the machines, which are no longer available for rental are being distributed to our stores to be sold over the next few months that will add to 31 altogether. Moving on to revenues. Moving to the slide of revenue results again demonstrate the strength of our business model in serving customers across our 4 verticals of business. Total gross revenue grew from BRL 489 million in the first quarter of 2026 to BRL 586 million in the second quarter of 2026. In rental and services, we maintain a diverse customer base. Revenue coming from recurring services continues to represent the largest share of our revenue, accounting for over 58% of the total. Revenues from rental vertical formerly spot represented 21% of the total, followed by 13% from the forklift vertical and 8% from [ San. ] Adjusted EBITDA for leasing and services increased from BRL 163 million in the first quarter of 2026 to BRL 217 million in the second quarter of '26. The margin reached 54.1%, an increase of more than 6 percentage points compared to the previous quarter. Adjusted consolidated ROIC was 17.3% in the second quarter of 2026, an increase of 2 percentage points compared to the second quarter of 2025. Our commitment is to grow with returns above the capital cost, protecting the balance sheet and creating value for our shareholders. Now on the next slide, we will discuss the operational and managerial cash flow. The operational and managerial cash flow exceeded BRL 369 million in just the 5 -- 6 months of the year. After servicing the interest on our capital structure, we generated BRL 105 million in cash over 6 months. We generated cash in both quarters of the year. In addition to demonstrating the health of operations, this number alone is already 82% higher than what was generated in the entire year of 2025. In the second quarter, we paid approximately BRL 29 million of dividends. We amortized BRL 59 million in discounted risk operations, zeroing out the balance of these operations, by the way. And also, we chose not to carry out the BRL 135 million in receivables financing. These last 2 moves had the beneficial effect of reducing the weight of financial expenses in our income statement and specifically led to an increase in net debt of BRL 207 million because strictly speaking, it is not debt, but its amortization signals our comfort in making such a decision anchored in value creation. Indebtedness, moving on to the final slide, we conclude the capital structure overview. The net debt to EBITDA covenant stood at 2.5x in the second quarter of 2026. We ended the quarter with BRL 935 million in cash with short-term amortization comfortably covered by our current liquidity position. We remain focused on managing our cost of capital, maintaining a sound debt profile and preserving financial flexibility. In conclusion, the second quarter of 2026 reinforces the consistency of our ecosystem. We still have a lot to do, but we are uniquely positioned in the market with enormous potential. Our commitment is to consistent growth over long and successive period. Thank you once again for your attention, and we'll open the Q&A session.

[Operator Instructions]. Our first question comes from Andre Ferreira with Bradesco BBI.

Congratulations on the news. First, what caught my attention was the separation of profitability among segments, especially forklifts and -- my question is where the capital allocation should focus margin one, if the mix would change and as a consequence, the consolidated. And the second topic is still along the same table, we can see the allocation productivity stands at 28% spot. How much was this productivity? Thinking about the level that can reach -- how far this business can reach in the future?

And -- thank you very much for the compliment on the new report. I'm going to answer your 2 questions. In relation to allocation. So we have more than 600 units with their own P&L and with industrialized -- individualized management. But our strategy is still centralized. We created internal governance mechanisms in order to evaluate the return of each real that is generated in the cash and the cash that's going to be used. And we also considered the investment in relation to the opportunity of repurchasing or buying back the shares of the company or return the capital to the shareholders in a different way. So there is a governance which is ever better. And management -- the decisions are made for all business verticals. All of them have profitable growth opportunities. And we believe that they are all going to grow. Some of them do not require a lot of capital, such as the case of Term. It's an asset-light growth, which is much more intensive in the experience and in the technical team than the machines themselves. They can also use old machines that will work effectively. Forklift is a capital allocation via M&A, especially, but they are sellers finance M&As and recurring services and rentals. So we have the method of purchasing equipment. M&A is also involved in all of them, such as Angel and D that are not included in the numbers of this quarter. But whether organic or inorganic, everything is to be tested and debated and the strategy are built after the learned lessons. I hope I answered your question. All of them have profitable growth opportunities. It's just a matter of choice, what the company would want and what it would not want in relation to the rental vertical, I'm going to take advantage of your question, and I'm going to say how we see it. It's a great opportunity that we see. Most of the users of equipment of the -- in Brazil, we're talking about millions because everything you do would require all those activities would require equipment. And the rental culture for this kind of service nowadays is very low in Brazil yet because there is the point of the echo the hand. First, the offer has to be created, distributed across the country with a seamless access as we do with lightweight vehicles. This is what we expect to do with machines. And this is something which is already underway. We have a team dedicated to that purpose. And as those initiatives gain momentum, we will get closer to the economics of rentals that we see as benchmark when compared to developed countries when the productivities are higher than 70%. So there's a long way to go yet. So there are many strategies at play. And along the time, we're going to be disclosing them to the market. It started with the distribution. The company used to be very concentrated in Sao Paulo. We used to have high-cost workshops in Sao Paulo, and we reduced the cost in order to distribute them in different prices in different places. So we could distribute the offer in different clients. So what we had -- what the United States did some decades ago, we're starting to do now. So we already have the road map. And with the conditions of purchase that we have in relation to those equipment, we don't understand why we have such a gap of rentals when compared to developed countries. And this is the path we are directing ourselves to. There was a structural block, which was the level of informality that we had in the country. Competition was even as for rentals because if you have service invoice and the mechanism of lower competitors is not to declare not to issue a formal invoice. But with the tax reform as of next year would end this. point. I think this is going to be a very favorable wind so that along the years, it's not something that will happen over 1 quarter, but rather long years ahead of us, and we are going to get close to the productive and to the margin that the rental short-term business have when compared to developed countries. I hope I answered your question.

Our next question comes from Gabriel Rezende with Itaú BBA.

Let me make a follow-up on the comments you made during the presentation, especially in relation to efficiency and all the initiatives that the company has adopted in order to have higher returns and more profitability in the business from the practical perspective of EBITDA margin that moved up and reached nearly 54%. I would like to understand how the company sees the recurrence of this level, especially considering the seasonality effect along the years. I understand that there is a new level that the company is aiming at. But obviously, we can imagine a fluctuation as a result of the seasonality in the next month. I would like to know how you see this dynamic down the road.

Gabriel thank you very much for the question. For some time -- I'm sorry, we had a technical problem. Let's try once again. We have a number of initiatives adopt along the way, and they are clear. If you look at the explanatory notes, if I'm not mistaken, I'm referring to Note 26. It's clear the size of the reengineering activity, which is very focused on the accountability and focused on the management method that would make this level of fixed cost very sustainable at the company. And also with high efficiency as a result of the scale captured in variable costs. This is to say that the seasonality would contribute to some volatility in the results, we focus on the rental vertical and the vertical of recurring service and forklifts are work like a clock almost. I imagine that there are some room for this margin to move upwards, but we are not to expect any surprises. I hope I answered your question.

Our next question comes from Lucas Melotti with Safra.

I have 2 on my side. First, I would like to talk about the rental growth dynamics. The revenue grew 8%, and you said integration of BRL 3 million for business integration. Considering that there was a growth of the previous quarter, what -- how much was the organic and inorganic growth? And you mentioned some expectations for 2026. So that would lead to a growth of 9%. So could you break down of what would be organic, what would be inorganic? My second question is about accounts receivable. We are in a very relevant moment during the quarter, both when we talk about nominal terms and also in terms of number of days? And what was the dynamic behind this? Was it deadline? Or was it something related to the company's integration? And is this the level we should expect for the future? Or should we expect some level of normalization on my side? These are the questions.

Perfect, Lucas, thank you for the question. I'm going to start answering your question. So here we go. Growth dynamics. In this quarter, in fact, we had a share related to the integration of the M&As with 35% of the growth in most part coming from the organic capacity. from the higher number of agreements and also in the improvement of the quality of our revenues. So we have been very disciplined in preserving our agreement readjustments dynamics. We have been very disciplined in collecting auxiliary expenses or revenues, so we don't miss any opportunity. For example, collect for damage that was made. So the management model has become more mature and we will continue contributing so that we can have a satisfactory and healthy results for the future quarters. The second quarter, in fact, has a weight that had the contribution from SCA. SCA has came in, in July. If I have to break down the results for the next quarter, for 2026, I would say that M&A will continue contributing with a, let's say, share of about 30% of our total growth. Even though we had made lots of operations, none of them has a side that would make the business move individually in a not proportional way. Our business is recurring services and rental, which are the protagonists that will have a better seasonability and we will have better distribution in country, and we also have another pricing list for the next months. So now answering your second question, accounts receivable. And this is where I would like to be very transparent. The move of accounts receivable does not come from the acquisition of those companies. Rather, they come from a very assertive decision that we made and that we made in a very frank way to -- and a practice that would have a supply chain finance transaction. So we no longer have BRL 135 million of anticipated performed receivables, considering that the capacity of cash generation of our operations naturally would already offer the liquidity comfort that would be large enough so that we would have to stop recurring results to those financial instruments whose cost would burden the income result of the company. So we are getting the benefits of having done our homework along the quarters, gaining more predictability and more cash generation volume so that we can now stop spending our resources on interest without any need. I hope I answered.

Yes, that was very clear.

Our next question comes from Joao Ramiro with XP.