JSL S.A. (JSLG3) Earnings Call Transcript & Summary

Good morning, and welcome to the conference call of JSL to discuss the earnings regarding the fourth quarter 2023. To the here with us, we have Mr. Ramon Alcaraz, JSL CEO; Guilherme Sampaio, CFO and Investor Relations officer for the company. [Operator Instructions] We would like to in front you that this conference call is being recorded and simultaneously engaged into English. Before moving on, we would like to let you know that any statements made during this conference call relative to JSL's business outlooks, projections, operating and financial goals are based on the company's management's beliefs and assumptions can rely on information currently available to the company. 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. General economic conditions, industry conditions and other operating factors may affect the company's future results and need to present that will materially differ from those in the forward-looking statements. Now we are going to turn the call to Mr. Ramon Alcaraz. Please, Mr. Alcaraz you may go on.

Good morning, ladies and gentlemen. It is a pleasure to be here with you once again to release our excellent results with continuous growth and consistence, 20% increase in revenue compared to the first quarter '22 and 40% of it. That is we grew percentage-wise, it doubled compared to revenues. Now we are going to go to our numbers. Gross revenue in the first quarter of '23 of $1.8 billion. As I mentioned, 20% above the first quarter '22. Net revenue, $1.6 billion and EBITDA of $306 million, 39% above that of first Q '22 EBITDA margin, 20.3%, a number that makes us very pleased. 3 percentage points over the first Q '22 net income of $31.2 million and return on invested capital of 15.2%, confirming our capacity to grow with profitability. [indiscernible] material fact released in the quarter that still has not contributed to the precise of the quarter, but that will certainly will in future results is the acquisition of IC transports, a company of $1.7 billion gross revenue annually. Another important effect is the upgrade of our ratings low by S&P. Going to the next page, the consistent growth of our revenue and results quarter-on-quarter is due to our resilience based on diversification of segments and sectors. Growth of 23% in food and beverage, reaching $535 million in the quarter, therefore, contributing to the growth of all operational segments dedicated operations, ware housing, urban distribution and cargo transportation. We have set the way growth of proper growth in person, growing our revenue by 21% in the quarter. Still on mining, we grew 12%. Together, we have reached $5400 million in revenue, and for boosting the dedicated operations segment. In automotive, we have expanded market share considerably, reaching 28% growth [indiscernible] the first quarter '22, especially due to new contracts reaching $287 million in revenue in the quarter and therefore, contributing to the growth of cargo transportation and dedicated operations. In the acquired companies, we increased our capacity of services, particularly at Maddow and TPC. And in the 100 international operations, we grew by 38%, with highlights to South Africa tend reach 83% implementation by first '23 compared to what has been already contracted. Going to the next page. We have a unique position with combination of scale, know-how and capacity to invest, consistent growth, not only at JSL and also at the acquired companies that individually grew 26% compared to the first quarter '22 when we compare these companies against themselves, as you can see on the chart to your right, on the next page, our competitive differentiator, supported by quality capacity of execution and capacity to extend has resulted in substantial increase of our services with a unique capacity of cross-selling. I would like to mention a new contracts signed in the amount of $605 million in the first quarter '23 with average term of 35 months. In very diversified sectors, to the beverage, 20% and chemicals and gases 21%; and copper paper, 20%. A very important highlight is that all these contracts that we are releasing were signed within existing customers. That is 100% cross-selling. Now I'm going to turn to Guilherme Sampaio that will give us more color on our financial results. Guilherme?

Thanks Ramon. Good morning, everyone. That was yet another quarter that shows the result of the work being performed by all the companies that comprise JSL today. We kept the pace of organic growth with considerable expansion of our margins. The first quarter, which is seasonally lower, showed the numbers very close to 4Q '22 but with extension of margins. The numbers reflect to the work of diligence in contracts, pricing of new contracts and the efficient work of our back office. Also the impact of synergies of the acquired companies. We closed first Q '23 with $1.6 billion net revenue, 21% above the first Q '22. And as a reminder, these numbers still do not affect the impact of [indiscernible] that we announced in March was approved by the Brazilian antitrust agency, but we are still in closing. IC would lead our net revenue to $2 billion in the quarter. Our revenue mix is 54% in asset light, 46% in asset very in line with previous quarters, which shows our capacity to grow in the 2 different operational models. We closed the cost with FTR 210 million, in line with the fourth quarter '22, 13.9% margin. That shows growth of 34% of EBIT vis-a-vis the first quarter '22 and end margin expense of 1.6 percentage points compared to 1Q '22 and EBITDA closed at 306 in line with fourth quarter, even in a quarter that normally has lower revenues because of the natural seasonality of the business, margin 20.3%, 1 percentage points above the fourth quarter '22. It's important here to remember that our operational results is still impacted by the depreciation of assets that we bought in the first quarter last year for projects that have not yet been deployed. Return on invested capital, we closed at 23.3%, but when we normalize the tax bracket and excludes the CapEx above the capital invested, we would get to a return on invested capital that we believe reflects the company of 15.2%. Net income also impacted by the depreciation, not still yielding results in the quarter closes at $31 million adjusted by the impact of acquisitions, PPA that we do every quarter. On the next slide, CapEx. We closed the quarter with $309 million, 95% of which dedicated to the expansion of new projects. Every member part of the CapEx is still not showing in JSL's revenues because of the time of project deployment. With that, we closed the quarter with $4 billion in assets trucks factors, machinery and equipment, net assets connected to long-term projects. We are talking about a group of assets. If you consider the market value, we have net assets that are worth 1.3x our net debt, $5 billion gross. That confirms what we've been saying. The capital structure is connected to the pace of organic growth and the capacity of cash generation enables us to grow through acquisitions without pressuring our capital structure. On the next slide, we closed the quarter with net debt of $3.8 billion $736 million in cash and $83 million in contracted revolving credit lines. Our leverage in the last 12 months was stable, 3.2x. And if we analyze the first quarter, 3.09 million EBITDA, we closed at 2.76x, which is our covenant reference. The highlights for the quarter is that we were upgraded by SP to level way on a national scale and that will be minus in the global scale, which confirms the work by confirming growth, generating scale and expanding margins, therefore, supporting the company's capital structure. With that, I'll turn the call back to Ramon. Ramon?

Thanks, Guilherme. Going to the next page, I'd like to give you the highlights of ESG for the first quarter '23. We were reported distinguish global logistics operator by GM. Only 4 operators in the Brazilian operations were awarded to being Brazilian companies, including JSL. JSL in logistics alone and the group, GM has more than 25,000 suppliers and only 100 received their awards. Our CFO, Guilherme and our Commercial VP, Eduardo Panera with a belt and a cabinet went to Texas to receive the award. Congratulation to this fantastic field team that received the award. And thanks, GM. E-value we were recognized for having 1,000 days without accidents. Congratulations. At Rialto, we received 2 awards completely dependent, JSL, best logistic operator and TBC acquired company best carrier for '22 for the performance of the whole of the year. For the second [indiscernible] we were recognized for our response environmental performance by Bayer. Here, you have secure code for our integrated annual report released in April. I'd like to talk a bit about EC transports acquisition approved by cutting April. This is a company of 40 years of performance in the logistics market, 2,400 operating assets, more than 1,700 employees and revenues of $1.7 billion year gross revenues. And a very balanced profile between asset light and asset heavy, 60 to 40. But more important than the numbers. This is a company that is recognized for its customers and the quality of execution of its services. Very important customers, as you can say, Kaizen, Mosaic, Cargill and others. Congratulations EC transporters for its 40 years of fantastic history. I'm sure that together, we are going to back an even better story.

Ramon, if you allow me, just -- you do have an idea of the [indiscernible] transaction, again, lately approved by county but still in closing. The enterprise value was $587 million. They have net debt of $429 million. So you're talking about equity value of $338 million that is the amount that was disclosed in the material fact. The exercise that we did, thinking of synergies of 2% of gross revenues. Already gives us a multiple of 5.1x the EBITDA reported going to 4.1x, just considering the synergies alone.

Thanks, Guilherme. Now on the next page, I'd like to highlight some important points. We understand that we have a unique position in the market to grow. We have very strong operational performance, way above the average with deployment of new projects, focused on corrected pricing based on parametric formula and also severe, strict management and efficiency considering consistent profitability margins gains of scale, leverage growth of the good acquired companies. As I mentioned, exposure to key sectors in the real economy in our country and abroad brings resilience of growth and results. With this sale, we are going to continue capturing synergies with the knowledge acquired with the companies. And we believe that gains can even be bigger. We continue with our internationalization agenda, be it organic or inorganic and acquisitions in response to our clients' demand. Finally, I would like to highlight that if we consider the combined gross revenue in the last 12 months of JSL and this year, we would have a company with gross revenue pass to $9 billion. Gentlemen, and ladies, with that, I'm going to close the presentation, and we are going to open for your questions, Guilherme be ready to answer any of your questions. Thank you.

[Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan.

I have 2 questions that are somehow related. First, CapEx. You did mention the presentation of the acceleration of the fourth quarter. So I would like to know what are you expecting in terms of capital allocation for the remainder of the year. And also, leach, I would like to know, you had a bit of an increase in the quarter. So how are you considering liabilities and leverage for this year. Thank you.

This is Guilherme. Thanks for your question. Okay. Capital allocation. Just as a reminder, in the fourth quarter, last release. We announced that we will reducing the purchase of some assets because we have the limit for Euro 5, 4 projects that would start as of the second quarter. So they have not yet touched. So in the first quarter because declining started at the end of March, beginning of April. So this is one thing. After allocation, we see a [indiscernible] very similar to last year in terms of absolute numbers, and considering the pace of growth that we have in our pipeline and also the $5 billion that we sold this year. Talking about leverage, we continue with the reference of 3x EBITDA. So if you think of cash flow, we are talking about the disbursement of almost $520 million in the quarter, part of which of that paying the CapEx that was reported in the first -- in the fourth quarter. So you see leverage go slightly up compared to the fourth quarter. You're talking about 17 to 325, 15 million, 20 million almost neutral, I would say. And then because of the growth of EBITDA, you see we going to 8% trend quarter-on-quarter, always getting to the 3x, which has been our reference historically. Talking about liability management. We already started the process. We are looking at our debt. In the short term, it's still not a huge amount. But obviously, we are working with the banks and consultants to try and extend our debt profile. I think the fact that we had Fitch upgrades. And now S&P will help us in the negotiation. And obviously, it is -- you would have to consider market times, and we are going to work with that along the year. Great, Guilherme, thank you very much, and have a good day.

Our next question comes from [indiscernible].

Ramon, congratulations on your results. I have 2 questions. The first at Slide 6, you mentioned new contracts signed with a return of $600 million. And now in the first quarter, I think that to close the contract, you have purchase of $80 million of asset from farmers. My first question is, first, on JSL side. If you could talk a bit about the rationale of the transaction, how the purchase of the assets was important for you to close 1 or more contracts if you could talk a bit about that. And the second question, if you could talk about how your international amortization process is set packed.

Thanks for your question. Yes, we closed $600 million in the quarter. And several sectors as we showed you food paying per pulp, et cetera. And that's not necessarily we led to the trucks we acquired from farmers. This is very important to say JSM as the largest south country's logistics operation of demos as the last severe at sudden point in time, we'll have commercial relations, basically due to availability. But one thing is not necessarily tied to the other. The $600 million has a lot much to do with our CapEx policy and other things. So the fact that Vamos is in the group is just a coincidence implicates. Guilherme later on can give you a bit more color on that. Now as our go international, we continue accelerating expansion. We are looking into good opportunities in Africa as a whole, we are starting with South Africa. In South Africa itself, we have already forecasted growth with a client that we have contracts with and also in other countries in Africa. Many parallel to have to we have had even perhaps give with the information that was the spread that we were going abroad. Gold customers are contracting and are compacting as for projects in Mexico, in Chile. So we are very much confident that we are going to have large projects in several countries. This is a bet. We think it's a very interesting opportunity to diversify factors, segments and currencies. Guilherme, I would like to add something? I hope I have answered your question.

Our next question comes from [ Luis Capistrano ] from [indiscernible].

My question is about contracts. We have a very strong comparison basis compared to last year because of a higher volume of contracts closed. You announced CapEx that is similar for this year. So my first question is first to try to understand what to expect in terms of new contracts? The first quarter of this year was similar to first quarter last year, so altogether, the fourth quarter last year really raised the bar. Are you comfortable with a slightly lower growth that was announced for the year of '22 as a whole. So I would like to understand a bit of this growth. Second also related to growth is the fact that you're always growing with existing customers, which is absolutely positive that very reinforces that the company has quality of services and customers want to increase contract. Looking at the other hand, we again start to wonder why not having new clients that are not through M&A. Is that a proactive decision of the company? Do you really believe that right now, the effort is to have the same contract, it's no due to extend more organically. You have a good position in your customers and for leverage purposes, it makes more sense. So could you get less a bit more color on this growth mix, so to speak?

Luis thanks for your question. Well, in terms of prospecting new contracts, of course, we have expectations of growing with new customers and new contracts, just like last year because we have lots of projects in our pipeline. So we have high expectations, and we are really speeding up. And quarter-on-quarter, we are going to be disclosing new contracts. That's our expectation. The fact that we have a high cross-selling rate. And your question is, on one hand, this can be good, but why not new customers? Well, we want to basically enjoy our opportunities with existing or new customers. Of course, new customers with existing customers we are already there. So our capacity to invest and exclude in the customers where we are already are is so huge, and we enjoy the opportunity but we are not accommodating there. And we are even restructuring our sales area and creating a new department for new contracts alone, exactly because of that, what you're saying, open new flowing segments where we do not operate, regardless of M&A. Of course, M&A is open new pathways. But regardless of that, because companies work independently, as we always say, we want to us JSL to have new fronting segments and areas in which we do not operate. And we are working strongly on that without losing sight of course, of our current customers.

Our next question comes from Renata Cabral from Citibank.

I have 2 follow-ups. In fact, but with regards to cross-selling within existing customers, I'd like you to help me to understand what is the regular rationale of customers? Are you getting share from other companies? What is exactly the cross-selling like within existing customers? The second question is the purchase of trucks from Vamos. It's very clear that well, you need trucks and Vamos sells trucks. This is a natural operation. But I'd like to understand how it works are how many times a year if this specific operation was slightly bigger than others. We think so because you had to have the material fact because it was about $50 million. But how is the business as usual? And do you buy also from other companies just for you to try and understand prices at wholesale.

I'm going to try to answer the first question on cross-selling. Just to correct you, we are not only in cargo transportation. We are also logistics operations. So we have inbound operations, warehousing, everything. I wouldn't say that we are stealing from other companies, but we are more competitive because of our capacity to invest, which does make a difference in times like this, especially because banks are more restrictive in terms of credit. We compete with midsized companies that have more difficulty in accessing credit. So this is the first thing. The second is our capacity of execution and the awards that we have been disclosing, show a bit of that. So it's a mix of both things. We get market share from the competition that happened, for instance, in line, which is an industry that did not grow much, but we increased the market share in the last 20 months. We doubled market share in the sector even if the second sector itself has not grown much. Today, you have the natural growth of companies [indiscernible] has been growing a lot, especially in the last 3 years, and we have set the wave. So we are always watching out for opportunities, not to miss anything, either by winning -- gaining market share or new contracts with our customers' extension. And connecting Luis questions, and we want to use the opportunity of new customers as well. We want to have expressive organic growth this year. Your second question, I'm going to let Guilherme answer.

Okay, about the purchase from them. So the first thing is the following. I think it's important to make it clear that when we're going to buy invests regardless of who it is, it is a specific asset for a specific project. So you may need an asset that Vamos has one out. So the first thing to understand is that what deterrents to purchase is the type of assets that I'm going to deploy. As we talked about prices, how does it work? We have a market survey on market bases. We have price. We are a large buyer. We compare prices submit to the Audit Committee and to the independent members and is approved to according to market conditions. We move on with the transaction. It is a simple event. And just to add we tried to do the best deal possible. We have a project, we have a specific need. We shop the market and we see prices, be it with OEMs or if it is used assets, we go to the market. It can be Vamos, but we also negotiate with several dealers.

Our next question comes from [ Heloisa Cruz from Stoxos ].

Congratulations on your results. I have 3 questions. First, I would like to know your granularity a bit more granulate with your backlog and also the renewal of contracts. When you look in $600 million, you're talking about new contracts. But how about contract renewals. The sale of vehicles and purchase. Is it also tied to renew? What is the breakup renew? And along of the slide, how does it work in terms of share service per client? That is what is your share in the existing customers.

This is Guilherme. I'm going to answer the first question, and then Ramon is going to add to contract renewal, okay? And also share within existing customers. Well, track pad, just as a reminder, when we had the acquisition, we announced that we had the 2 major pillars: one, to help the digitalization process and efficiency in JSL cargo transportation and second, to be an independent company with a business model that would provide services to JSL, but other companies as well. So to give you a bit more granularity today, we have already completed the first phase of the case inside JSL. So we are already running a pilot to optimize cargo transportation within same region. Of course, we have to run the pilot to make the necessary adjustments and have to roll out of the complete operation. And also in parallel, we are working in truck pads as a business itself. So there are several services, several demands that today, JSL contracts from third parties, operations and other activities that truck pads could add within its service portfolio since it is focused on the cargo transportation sector. So the first digitalization of JSL is on track. This is exactly where we wanted to be. Of course, it takes time for us to have it in the whole of JSL is scale. And second pillar is still a bit more incipient, but on leasing paper, we know what we have to do to really transform trackpad to what we want. And now I'm going to turn to Ramon to talk about contract renewals.

Because we have huge diversification of services, I'm going to try to give you an average answer, but the answer is that ever is because we have 2 diversification. If I were to give you a general answer to the whole of Brazil, not necessary JSL, I would say that customers try to have a maximum market share for logistics vendor of 30%. This is a dual fun. In JSL, this sometimes supplies are not. We have some customers in the automotive anti forestry and beverage that we do have up to 100% share of our sales. So it is not an absolute law. Other clients try to keep the percentage. Because our segment has huge granularity that is your hand many companies, it's very fragmented. More and more large companies understand that if you think you're going to have more vendors because you're going to have more competitiveness, you were wrong because the fact is you are sharing the same pie in too many pieces and everybody is starting. So more and more large companies are decreasing the number of vendors and those who stay are gaining market share. And that's what we are really seeing. That happened in food and beverage, it is happening in automotive with instance, one of our clients. We doubled the size of our business and have 100% market share in the service with Microban. It has been happening in the forest industry that historically that did have the second of having many vendors. We closed the contract at 100% of the forest with us. So it's not a law firm, but we see the trend of large companies willing to work with lesser number of vendors. As for renewal percentage, well, you know that our contracts are, on average, last 40 to 50 months. This quarter is slightly lower, 36 months, but be talking about 25 months on average. And then every year, they expire and we have negotiations. We have a very high renewal rate above 90%, 90% to 95%, I would say. We always believe that it's a lot better to team a client to keep a contract than deploying a new way. So we do our best. It's not always possible because we are not going to do away with prices, but we were very hard to have a high rate of renewals. I hope I have answered your questions, Heloisa.

[Operator Instructions] There are no further questions. I would like to turn the call to Ramon Alcaraz for his final considerations. Please, Mr. Ramon.

Well, my friends, first of all, I'd like to thank you for joining us. Some questions always help us to explain our company better. And as you can see, I would like to strengthen that we are at a new level of margins. We have been strongly working in the past 2 years, and we are disclosing quarter-on-quarter a strict management of costs, prices, new contracts with parametric formulas and pricing that talk to the new macroeconomic environment for us to have veneer and strong growth compared to our margin. This was yet another good quarter. and we believe in consistency and the whole team is working strongly on that as results start on. We have a very strong capital structure as we are also disclosing quarter-on-quarter, which positions us in a very differentiated position compared to the market. We know that the market is unpredictable. If you think of the macroeconomics, Brazil and the world, but we are still in a paper position in terms of capital structure, execution of services, and we want to enjoy the opportunities that come to us, and there are many opportunities to come. We are very confident in the mergers that we have been making. Now we have IC that was acquired in the first quarter, but the closing is still to happen in the second quarter. We are very excited because we believe there are loads of opportunities there. And we are ready for what the year has to bring to us, very confident that we are going to deliver a year that gets continuity to the work we have been developing in the last 2.5 years. Thank you very much. I don't know Guilherme want to say something. But I'm very excited, and thank you very much for joining us today. That's it. Thank you very much, speaking here.

JSL's conference call is now closed. We thank you very much for joining and wish you a very good day.