International Meal Company Alimentação S.A. (MEAL3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to IMC's conference call to discuss the second quarter of 2020 results. The presentation is available for download at the company's website, www.internationalmealcompany.com/ir. [Operator Instructions] Forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of future developments. In this conference, we have Mr. Newton Maia Alves, CEO of IMC; Ms. Maristela Nascimento, Financial Officer; and Mr. Luis Felipe Bresaola, Investor Relations Officer. I will now turn the conference over to Mr. Maia. Please, Mr. Maia, you may proceed.

Good morning, everyone, and welcome to IMC's conference call for the second quarter 2020 results, in which we will provide information related to the company's performance in the period, in addition to commenting on the challenging period we are going through with the COVID-19 issue. On the first slide, I highlight that we ended the second quarter of 2020 with 492 restaurants, of which 240 are owned. On Slide 3, I'd like to comment on the results of the second quarter and the effects of COVID-19 on IMC's operations. Our consolidated revenue fell 62.5% with the momentary closure of our operations due to the COVID-19 pandemic. Adjusted EBITDA was negative by BRL 27 million with a negative margin of 18%. The net loss in the period was BRL 382.8 million, mainly impacted by noncash effect of asset impairment, which I will explain in more details later. IMC consolidated pro forma same-store sales, including the Pizza Hut and KFC operations, decreased 63%. Cash consumption from operations in the period was BRL 36.3 million, and our net debt reached approximately BRL 416.9 million. It's important to highlight that the cash does not yet have the BRL 372 million from our share offering that took place in July. On the next slide, we show the same-store sales performance in the last months of our main operations. We can observe a positive trend in the recovery of sales of Frango Assado, KFC, Pizza Hut and Margaritaville, although we still operate with reduced hours in part of the stores. It is important to note that the base of the stores used are only those stores that were open every day within each month. On Slide 5, we highlight IMC's consolidated same-store sales in constant currency and also in Brazilian reals. Here I'd like to emphasize the effect of exchange rate on IMC's operations, which makes our consolidated same-store sales grew from negative 37.2% to negative 28% in the first 15 days of August. On Slide 6, we highlight our delivery operation over the past few weeks. We continue to maintain high level of sales even with the reopening of over-the-counter operations. This is an important indicator and shows that delivery is a channel that adds and does not cannibalize sales. Additionally, we move forward with the Pizza Hut's small box project, which will be launched later this year. This store will have a reduced size. We work at times with high demand, and we also focus on delivery and to-go. As for our own apps, Pizza Hut is in the process of being updated, KFC should launch very soon. And Frango Assado will be an application focused on those drivers, and we work as a CRM. On the next slide, we comment a little bit more about the expenses reduction events. We continue with a reduced staff. And in the U.S., we were already able to access the Paycheck Protection Program, PPP, that finances the payroll and rents for our operations. We access a line of $11 million that if we reach certain rates of job maintenance, it can be forgiven. Additionally, we see potential efficiency gains in the postpandemic, with the readjustment of staff, simplification of menu and training via Zoom software. On the next slide, we comment our follow-on offering that happened in July, where we issued 90.4 million shares and received an offer of BRL 384 million. The main focus of fundraising is the expansion of our main brands, such as Frango Assado, KFC and Pizza Hut in addition to acquisition of franchisees and also reinforcement of working capital. We have valuable brands in their respective segments in fragmented markets with attractive growth rates in the pre-pandemic period. Additionally, we believe that the postpandemic will be a market with less competition and with a greater availability of well-located points, and we see also IMC as one of the protagonists in the food segment. On Slide 9, we talk a little about the current situation of the operations and the perspectives based on the information released by government officials, companies and the media. In our highway business, we have all of our stores open, and the recovery in highway traffic has contributed to recovering sales. At airports, we continue with 5 catering operations and air traffic has been showing a positive evolution month-by-month. In Pizza Hut, KFC and other brands, we continue to move forward as malls increase their opening hours. In the U.S., we have all 23 stores opened, but we still have operating hours limitation and also the capacity restrictions. Highlight here is for the opening of a store in Miami Bayside in early July. And in the Caribbean, we continue with the Panama Airport close with expectation of reopening on September 22. In Colombia, the flights are starting to resume now at the beginning of September. Finally, on Slide 10, we show a store base on August 17. On that date, we had 383 stores, the system opened. Out of those, 273 were using delivery only. Out of the stores that are opening -- opened, 170 are our own stores. Now on Slide 11, we have the adjusted EBITDA bridge, which was negative by approximately BRL 27 million in the quarter, reflecting the impacts of the COVID-19 pandemic and excluding the special items that I'll comment on the next slide. Brazilian operations, including G&A and others, totaled a negative adjusted EBITDA of BRL 46 million. In the U.S., EBITDA in the period was positive by BRL 19 million, benefited by the Paycheck Protection Program, while the Caribbean EBITDA was close to 0. Now on Slide 12, we detailed the special items that totaled BRL 389 million in the quarter. Of the total, we have BRL 324 million arising mostly from goodwill impairment due to the reduction of the recovery value of operations of Vienna, Batata Inglesa and airports in Brazil. I want to highlight 3 points here. This impact is accounting impact with no impact on our cash position. The tax benefit of those goodwill due to the acquisition of the brands has already been used. And the impairment was realized as we closed stores in these operations and incorporated a new scenario with the COVID-19 effect. Now I'd like to turn the call over to our Investor Relations Officer, Luis Felipe Bresaola, to explore the results in more detail, and I'll return later for our final remarks.

Thank you, Newton, and good morning, everyone. On Slide 13, we show the business performance in Brazil. Revenues were down by 58.5%, a decrease that was minimized by the addition of Pizza Hut and KFC businesses, and EBITDA of BRL 20.9 million was negative, reflecting the impact of the pandemic of COVID-19. Moving now to Frango Assado on the next slide, operating revenues decreased by 52.1% with an adjusted operating result of negative BRL 7.2 million. The reduction in traffic on the highways and registered hours in our stores impacted our restaurants' operations. On the other hand, we changed our strategy at the gas stations and the focus on trucks minimized the drop in revenues. On the next slide, we comment on airport's performance. Revenues decreased by 93.7%, while the adjusted operating result was negative by BRL 5.7 million. The 88.7% drop in flights at the airports where we operate was the main factor behind the segment's performance. In the Pizza Hut, KFC and other business, revenue fell 39.3%, minimized by the addition of KFC operations at the end of November last year, and the adjusted operating result was a negative BRL 16 million. The closing of the malls was the main factor behind the performance in which we minimized by the expansion of the delivery channel in those brands. Moving on to Slide 17. We talk about the operations in the U.S., which we present in local currency. The impact of the COVID-19 pandemic caused our revenues to decrease by 70.1%, but EBITDA to be positive by BRL 3.7 million, impacted by the PPP of the American government that financed payroll and rents. On the next slide, we will look at the Caribbean operations. For a better analysis, we present the numbers in reais in constant currency. Revenues in the period decreased by 92.8%, while EBITDA was close to 0. The suspension of employees' contracts and the renegotiation of rents were the main points behind to minimize the drop in revenues, even that the airports were closed during the entire period. Finally, on Slide 19, we comment on the company's cash flow. In second Q '20, due to the challenging operating scenario, cash consumption after maintenance, CapEx was approximately BRL 36.3 million. In the net cash variation, it was negative by BRL 76.1 million, and here, we added the investments of BRL 22.9 million in the opening of Pizza Hut, KFC and stores in the U.S.A. It's important to note that these figures account with the BRL 372 million that we raised in the follow-on that happened in July. I end my comments here, and I give the floor to the operator to start the Q&A session. Thank you.

[Operator Instructions] There seems to be no further questions. I would like to turn the floor over to Mr. Maia for his final remarks.

Thank you, everyone, for joining our call. This is the most difficult quarter in the history of the company, but I think we show improving results in the recovery of sales, in cash preservation. And with the follow-on offering, we're working very hard to resume growth as soon as possible. Thank you, everyone. If you have further questions, please refer to our Investor Relations department. Have a good day. Bye-bye.

This concludes IMC's conference call. You may now disconnect, and have a nice day.