BRBI BR Partners S.A. (BRBI11) Earnings Call Transcript & Summary

Good day, everyone. Thank you for waiting. Welcome to BR Partners video conference call to discuss third quarter '26 earnings results. We inform you that this conference call is being recorded and can be accessed in the company's IR website where you'll find the full package of our financial disclosure. [Operator Instructions] We emphasize that the information contained in this presentation and forward-looking statements that might be made during the video conference call relating to BR Partners business prospects, projections and operating and financial targets are based on the beliefs and [ sentiments ] of the company's management as well as on information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, we have the following officers present. Ricardo Lacerda, CEO; [ Susan avians, ] CFO; Danilo Catarucci, Managing Director and Head of Capital Markets; [ Macau Costa, ] Managing Director and Head of Treasury Sales and structuring. Now I will turn the floor to Raul, who will start the presentation.

Good day, everyone, and thank you for joining in our conference call to discusse 3Q '26 earnings. Starting with the financial highlights. We ended the third quarter in an environment marked by greater volatility and uncertainty in the economic and political landscape, which contributed to clients postponing their decision-making. In this context, the diversification of our activities and the tactical balance sheet management remain key differentiators in our business model. In Q3, revenue -- total revenue was BRL 123.3 million, down 5.2% quarter-on-quarter and down 7.5% year-over-year. Year-to-date, revenue reached BRL 388.2 million a reduction of 3% compared to the same period last year. Revenue from clients totaled BRL 84.2 million in Q3 and [ BRL 295.2 million ] year-to-date. Net income was BRL 23.5 million for the quarter and BRL 96.3 million in the first 9 months of '26. With ROAE at 11.5% for the quarter and 15.9% year-to-date. In terms of operational highlights, we announced 19 Investment Banking deals until September compared to 7 in the same period last year. with a significant share of M&A operations. We also received a prestigious institutional recognition from Euromoney as the best fixed income bank in Brazil in 2026. On Slide 3, we highlight the evolution of revenue diversification. Since the pre-IPO period, we have been investing in the development of businesses with higher recurring revenue. seeking to broaden our revenue streams and reduce our historical dependence on more cyclical activities, as we can see in the chart between 2020 and Q3 '26. Revenue from more recurring businesses grew at an average rate of 25.6% per annum compared to 15.2% for total revenue and 3.4% for investment banking. This trend demonstrates the growth of these divisions and they are increasingly significant contribution to the diversification of our business model. It is important to note that each of these activities responds differently to market conditions. As a result, diversification allows us to better balance revenue generation across different economic cycles. During the year, we observed an improvement in our IB activity with a higher number of deals closed. At the same time, other business lines continued to contribute to revenue generation this quarter, notably treasury sales and structuring and capital revenues. On the next slide, we see the evolution of revenue from clients. In Q3, revenue from clients totaled BRL 84.2 million more. Year-to-date, revenue was BRL 295.3 million, a reduction of only 1.8% compared to the same period last year. Revenue from clients accounted for approximately 68% of total revenue for the quarter, reflecting lower activity in some divisions, a greater contribution from capital revenues. Year-to-date, [indiscernible] share stood at approximately 76%, in line with the figure for the same period in 2025. We, therefore, continue to have a diversified base of revenue sources with a significant share coming from activities directly related to our clients. Moving on to Slide 5. On Investment Banking and Capital Markets, we observed different dynamics between the 2 business segments throughout the quarter. In Capital Markets, the most select environment impacted volume of issuances an environment of heightened economic political uncertainty, coupled with a still high cost of funding and greater selectivity in the credit market, all contributed to longer processing times and the postponement of funding decisions. In IB, however, we observed continued M&A activity with an increase in the number of announced deals and opportunities in capital solutions. Combining these 2 divisions, revenue totaled BRL 53.4 million for the quarter and BRL 218.6 million year-to-date, remaining practically flat compared to the first 9 months of '25. Breaking down our Investment Banking activity, we announced the 19 transactions in the first 9 months of '26 compared to 7 in the same period last year. Of this total, approximately 84 were M&A deals with the remainder divided between capital solutions and Board services. Our pipeline remains diversified opportunities across various sectors, primarily financial services, telecommunications, health care, retail and agri business. We also continue to identify of opportunities in capital solutions, particularly in transactions that require more complex financial structures. The pace at which these transactions are closed, remains subject to market conditions and client decision-making still have remained active in originating and executing new mandates. Among the recently announced transactions, I would like to highlight a few: we served as financial adviser to [indiscernible] in its strategic agreement with [ Bradesco Seguros ] for distribution of insurance products. We also advised on the creation of a joint venture between [ Boe Safra, Bestway seeds ]and flour mills of Nigeria focused on the production, processing and marketing of seeds in Nigeria. In addition to these deals, we advised the maize on the sale of its assets in Latin America and cover the sale of the company to [ pick pay. ] These operations showcased the diversity of our mandates and our ability to operate across different sectors and deal structures. On the next slide, in Capital Markets, we continue to operate in an environment of greater selectivity with high funding costs and [ Mohasco ] funding decisions on the part of companies. In the third quarter, we conducted 8 issuances totaling around BRL 1 billion compared to 15 transactions and BRL 1.9 billion in the previous quarter. Year-to-date, the volume of issuances reached EUR 5.3 billion, spread across 42 operations compared to 24 transactions in the same period of '25. Before, we saw a significant increase in the number of deals but with smaller tickets, year-to-date average ticket stood at BRL 127 million or 55.1% a decline year-over-year. This reflects a more selective market with smaller deals and greater caution in making funding decisions. Now moving to treasury sales and structuring. We saw recovery in revenue this quarter. We reached BRL 25.9 million, up 39.6% compared to Q2 '26. For the first 9 months, revenue totaled BRL 63 million, down 9.8% compared to the same period last year. Quarterly results were favored by increased market volatility and the continued growth of our client base. This performance underscores the importance of platform that meets the recurring needs of our clients and contributes to the diversification of our revenue streams. On the next slide, starting with Wealth Management. We continue to track the platform's progress. We ended September with BRL 6.2 billion in assets and management. Revenue for this division totaled BRL 4.9 million in Q3 and BRL 13.8 million year-to-date, growing 22.1% compared to the same period of 2025. This performance reflects the growth of our client base and the gradual expansion of the platform. As for capital revenues, revenue totaled BRL 13.1 million in Q3, up to 2.5% increase compared to the previous quarter. quarterly recovery was driven by the recycling of positions in securities warehousing throughout the period. For the first 9 months of the year, this totaled BRL 92.9 million, topping 6.6% year-over-year. Turning now to our financial and operational performance. We ended the first 9 months of 2026 with net income of BRL 96.3 million a net margin of 24.8% and ROAE of 15.9%. As our efficiency indicators, efficiency ratio stood at 61.6%, while the comp ratio was 34.1%. These indicators reflect the increased weight of expenses during a period of lower revenue generation. We continue to monitor this trend closely, focusing on cost discipline and the productivity of our investments. On the other hand, revenue per managing director remained relatively stable at around BRL 29.5 million compared to BRL 30.1 million in the same period of previous year. We remain committed to the development of our teams and to the execution capabilities of our business units seeking to maintain productivity and profitability in our operation. On the next slide, as regards to capital structure, we ended September with total capital of approximately BRL 1.26 billion, consisting of BRL 831 million of shareholders' equity and BRL 427 million additional Tier 1 capital. Our funding totaled BRL 5.34 billion with average maturity of approximately 743 days. Thus, we maintain a long-term funding structure aligned with our strategy of preserving liquidity and ensuring flexibility needed to support our clients and business opportunities. On the next slide, we show the evolution of our capital allocation and balance sheet management strategy during the quarter in an environment marked by greater volatility and uncertainty which was to adopt a more conservative stance in capital allocation, seeking a lighter balance sheet during this period. As a result, we reduced our securities warehousing from approximately BRL 3.3 billion at the end of June to EUR 2.6 billion at the end of September. This contributed to a reduction in leverage, which fell from 3.26x to 2.43x. While the Basel ratio rose from 21.6% to 23.9%. This progress reinforces our discipline in balance sheet management, preserving financial strength and maintaining flexibility for new investment opportunities always with a focus on the efficient use of capital. to support our activities with clients. Finally, regarding shareholder returns, we are announcing the payment of interim dividends for the third quarter of '26, the total amount will be BRL 12.6 million equivalent to BRL 0.12 per unit, a payout ratio of 54%. The record date will be November 12. Payment is expected for November 26. In conclusion, the first [ month of ] 2026 were marked by a more challenging environment with greater volatility and delayed decisions across various markets. In this context, we saw a decline in profitability compared to last year, but we managed to keep revenue from clients largely stable, expand our IB activities and strengthen our solid capital structure. In addition, we have a diversified business model with activities that meet different client needs, and that remain in demand even in more challenging economic scenarios. This characteristic allows us to navigate different market cycles with complementary revenue streams and a more balanced business platform. For the coming periods, our priorities remain the execution of our mandates and the deepening of our relationships with our clients, disciplined expense management and the efficient allocation of capital. Thank you very much. for participating, and we are now available for the Q&A session.

[Operator Instructions] To start with the question, first question from [indiscernible] with BTG Pactual.

I have 2, I understand that the volume in the M&A pipeline is very robust. But it came a little worse than expected in deal conversion. So if you could elaborate on the conversion rate today, and how does it compare to most stressed cycles in the past? And what would be a more normal level in your view? And my second question thinking about this movement of sale of securities in Q3. Could you comment on the bank's appetite to include DCM in the current portfolio at the current interest rates. And if there is lower appetite, could this be a barrier to the growth of the capital markets next year?

Perfect, Ricardo. Thank you for the questions. As for the first one, I can say that the conversion rate is a little lower than normal, around 25% to 30%. And this is very much due to the whole uncertainty and volatility that we have faced. But a good sign is that when you don't have conversion of you, you can have 1 of the results, the operation can die or it can just be delayed. What we have seen so far is more delays than mortality of the deals. So I think that our pipeline remains very robust. I would say close to record levels actually. But unfortunately, given the whole scenario, we have a lower conversion, but nothing there a more benign landscape of interest rates and expectation regarding the fiscal side cannot reverse. Because like I said, we don't see a lot of mortality of the deals, but rather more delays. To your second point, yes, we do have appetite, and if you look at our Q3 earnings, it is clear that we took advantage of this more positive market moment to leave our balance sheet lighter. And I think this was the right move, considering a highly volatile situation. Our interpretation was that the electro race was very, very equal, very high. And when the market started signing almost 80% to 90% likelihood of a right wing victory. We saw that there was some asymmetry in that perception. So we try to accelerate this process to reduce risk, and this ended up putting us in a very comfortable position for us to use now our balance sheet under a new landscape with a risk pricing that is not totally different. So yes, the appetite remains. And of course, we are always cautious because we use our balance sheet much more to generate operations with our clients and to make a deal that will bring us fees possible. But we are now entering a more delicate moment but we have reinforced capital and flexibility to use our balance sheet. Danilo, do you want to add anything or Jose Flavio maybe. But basically, this is my view.

No, I think this is it. And just to underscore what we always say, we use our balance sheet in a tactical way. When we solve the window with the rates ending the quarter at the level that they did during the electoral moment, we took advantage and kind of "cleared" the portfolio. The market was taking a lot of loans the rates closed. So we put it in our pocket. And as regard to said, we now have a very light balance sheet to enjoy the opportunities that will arise now. And of course, things looking forward might be strange. So we've been very selective in everything that we do.

Next question from Bernard Gutmann with XP.

Thank you for taking my question. I would like to explore the data market. cold my attention is that increased a lot the number of issuances throughout the year, but the financial volume dropped the average ticket is lower. So I'd like to understand whether this reflects a change in the mix of operations or whether we are seeing a deterioration of market conditions. And looking ahead, how you see the dynamic of issuances, particularly given the greater selectivity of investors and discussions involving incentivized instruments. Does this change in the profitability of the operations for you?

All right. Let me address that. Regarding the average ticket this is much more related to the moment the timing of those 3 months before the elections. We had a reduction in the number of clients that were looking for money -- so that number dropped as it normally happens before any election. So looking ahead, for example, this quarter, this has come back to normal. But looking forward, we will have to understand what the new rents will be, so that we can answer your question. But I would say that this is more linked to the elections in the electoral period. And looking forward, it will depend on the administration on what the next administration will be like. so that we can tell you whether we expect an improvement or a worsening. And it will also depend on investors. This discussion about the exemption that came back to the pipeline now. So the market is still digesting everything that has happened in this last week, basically. So what we are doing is digesting this but most likely, the market in terms of volume, the average should go back to what it was before. We don't expect a reduction. And we don't see a reduction in our appetite what we have today, it's more selectivity in credit, considering everything that we thought was going to happen. Interest rates close to 300 points, and now it has gone back to 200, 300 points. So we have to keep our finger measuring the post to see whether and where we are going to invest our capital.