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 third 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 further developments. In this conference, we have Mr. Newton Maia Alves, CEO of IMC; Ms. Maristela Nascimento, Financial Officer; and Mr. Luis 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 third 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 Slide 2, we highlight that we ended the third quarter of 2020 with 490 restaurants, 241 of which are owned. On Slide 3, I'd like to comment on the results of the third quarter and the effects of COVID-19 on IMC's operations. Our consolidated revenue fell 29.7%, an evolution compared with the second quarter of 2020 with the reopening of stores through the period. Adjusted EBITDA was positive by $42.6 million with a margin of 14.3%. The net loss in the period was BRL 5.1 million. IMC consolidated pro forma same-store sales, including Pizza Hut and KFC operations decreased 29.1%. Cash from operations in the period was positive BRL 1.1 million despite a pandemic. And our net debt reached approximately BRL 86 million, reflecting the follow-on carry out in July, which added more than BRL 370 million to IMC's cash position. 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 Frango Assado and Pizza Hut. In the U.S., we continue to be pressured by the issues of reduced capacity and hours, and in KFC, with the reopening of new stores in September, the delivery area of some KFC stores opening in August was reduced and with this the volatility -- the improvement of same-store sales. On Slide 5, we highlight IMC's consolidated same-store sales in constant currency and in reais. Here, I would like to emphasize the exchange rate effect on IMC's operations that improved our consolidated same-store sales from negative 21.3% to negative 11.5% in October. On the next slide, I'd like to reinforce that despite resumption in our operations, we continue with caution since we still observe an unstable environment. The teams remain small, and we continue to analyze opportunities for efficiency gains with staff optimization, simplification of menus and other initiatives. On the next slide, we comment on our expansion strategy, focus on the Frango Assado, Pizza Hut and KFC brands, in addition to the acquisition of some franchisees. In Frango Assado, we have negotiations with several road gas stations' groups and we're also in discussions with a few distributors to indicate stations for new Frango Assado. We've moved towards a flexible growth model, which encompass: One, the purchase of gas station plus existing restaurants, excluding the real estate; or 2, purchase of gas station, including real estate from distributors for future sale lease back. Also, we are considering partnership to operate only the restaurant. In that case is lower CapEx and a greater number of available assets. Additionally, I'd like to emphasize that 4 stores are in very advanced negotiations in the partnership format. At KFC, we have negotiations with mall groups and hyper and supermarket chains for new stores. We made progress in preparing the first drive-thru store, and in the first 9 months of 2020, we opened 12 new stores and acquired 6 franchisees' stores. Finally, at Pizza Hut, we focus on expansion in street stores, especially in gas stations, and have negotiations with several groups that operate city gas stations. In the first 9 months of 2020, we opened 14 new stores, and we have 4 new store-in-store within Frango Assado being developed right now. Finally, on Slide 8, we show a store base on October 30. At this date, 93% of our stores were open, and out of this number, 15% of the stores were operating only with delivery. Now on Slide 9, we have the adjusted EBITDA bridge, which was approximately BRL 43 million in the quarter versus BRL 78 million in 2019, reflecting the impact of the COVID-19 pandemic. Brazilian operations, including G&A and others, total an adjusted EBITDA of BRL 3 million. In the U.S., EBITDA in the period was positive by BRL 40 million, benefited by the PPP of the American government. While the Caribbean EBITDA was BRL 1 million negative despite the fact that the operations returned only in October 12 for the Tocumen airport. Now I'd like to turn the floor 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 10, we show the business performance in Brazil. With the revenues falling 30.5%, a decrease that was minimized by the addition of Pizza Hut and KFC businesses, and an adjusted EBITDA of BRL 3.4 million positive out of the impact of the pandemic, it's an evolution from the negative BRL 34.4 million in the second quarter '20. Moving now to Frango Assado on the next slide. Operating revenue decreased 22.2%, with an adjusted EBIT -- operating result of BRL 13.9 million. The reduction in traffic on the highways do impact our restaurants' revenues. On the other hand, we changed our strategy at the gas stations, focusing on the trucks that minimize the drop in revenue over the business. Next slide, we comment on Airports performance. Revenue decreased by 82.9%, while the adjusted operating result was positive by BRL 0.9 million. This 72.1% drop in-flight traffic at airports where we operate was the main factor behind the segment's performance, which was partially offset by our cost and expense reduction initiatives. In the Pizza Hut, KFC, Viena, Batata Inglesa, and Olive Garden businesses, revenue fell 1.2%, minimized by the addition of Pizza Hut and KFC operations at the end of November 2019, and the adjusted operating result was negative by BRL 700,000. The grand reopening of the stores throughout the quarter contributed to the evolution in the numbers month-over-month. Moving now to Slide 14. We talk about operations in the U.S.A., which will be presented in local currency. The impact of COVID-19 pandemic caused our revenue to decrease by 34.1%. But EBITDA was positive by $7.4 million, impacted by the PPP of the American government that financed the payroll and rents for the second and third quarter '20. On the next slide, we will look at the Caribbean operations. For better comparison, we present the numbers in reais and in constant currency. Revenue in the period decreased by 88.7%, while EBITDA was negative by BRL 800,000. The suspension of employment contracts and renegotiation of rentals were the main points that minimized the drop in revenue, given that the airports were closed during the entire period. Finally, on Slide 16, we comment on the company's cash flow in 3Q '20, despite a challenging operating scenario. Cash generation after maintenance CapEx was approximately BRL 1.1 million. In the net cash variation, the follow-on offering that happened in July was a key factor behind the improvement in our cash position. I end my comments here, and I give the floor to the operator to start the question-and-answer session. Thank you.

[Operator Instructions] There are no questions in the audio queue. Since 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 the call. I would like to -- we are confident with the recovery -- sequential recovery of sales in all units, particularly from the -- we're already almost back to 2019 sales. We are also happy with the announcement that we made on the expansion of Frango Assado, the partnership with Monte Carlo group where it could lead to 18 new stores, being 10 Pizza Huts and 8 Frango Assado. 8 stores might not look much, but it's 1/3 of the Frango Assado network stores. And it's a proven success, the store-in-stores format, that we started this year of Pizza Hut stores inside Frango Assado, it boosts both brand sales. And also, the synergy on selecting real estate and new places on having negotiations with gas stations' groups because it not only grows Frango Assado in a highway but those groups usually are owners of several dozens of gas stations in the cities in which we can put Pizza Hut focus on delivery as well as small box store. So all in all, we are happy with the results and improving results, of course, not with the bottom line, and we are available to discuss any further questions with our Investor Relations. Thank you, everyone. Have a good day.

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