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

Good morning, ladies and gentlemen. Welcome to JSL's conference call. We'll discuss the results for the second quarter of 2026. This call is being recorded, and a replay will be available on the company's website ri.jsl.com.br. The presentation is also available for download. [Operator Instructions]. Before we begin, I'd like to remind you that any forward-looking statements made during this call are based on JSL management's current beliefs and assumptions as well as information available to the company at the time. These statements may involve risks and uncertainties as they relate to future events, therefore, the panel circumstances that may or may not occur. Investors, analysts and journalists should be aware that events related to macroeconomic conditions, we have developments in our industry may cause our actual results to differ materially from those in the forward-looking statements. Joining us today are Guilherme Sampaio, CEO; Eduardo Nauck, IRO. Now I'll turn the call over to Mr. Guilherme Sampaio to begin the presentation. Mr. Sampaio.

Good morning, everyone, and welcome to JSL's Second Quarter 2026 Earnings Call. This is a special earnings call for us as JSL is celebrating its [ 70th ]. For 70 years, we have worked alongside our clients to address a wide range of logistics challenges, continuously expanding both our service portfolio and our client base. For 70 years, we have built relationships and work to contribute to our clients' businesses while developing our people. To reach the 70-year milestone, JSL has to reinvent itself several times and we continue to do so as we build the next 70 years. The first slide shows a recap of this history, which started with a Portuguese immigrant and his first truck in 1956. Over the years, the company grew and developed. And in 2010, we public [indiscernible] already with several businesses in its portfolio. Following the IPO, some of these businesses grew significantly and required independent growth plans. It was during the period at Movida and Vamos were created, the bank began to take shape and others. In 2020, as part of this ongoing transformation with each new cycle, JSL proposed a corporate reorganization that led to the creation of SIMPAR as the group's holding company. This gave JSL independence to execute its own growth plan and pursue consolidation of Brazil logistics market. In 2020, JSL relisted shares and began this process growing from a company with BRL 3.3 billion to BRL 11 billion. Over the last 5 years, we completed 8 acquisitions in addition to organic growth, adding new capacities and a team that is able to develop even stronger partnerships with each of our clients. At the end of last year, we announced a new organizational structure for JSL's businesses with the creation of [ Interlagos Digital and Geocell dedicated services]. Each has a different business model designed to serve a different market while generating synergies among them. For '26, we are taking another step by separating the dedicated services business into 2 companies, when with our own fleet and another use third truck drivers, different models designed to meet different needs of each of our clients. Now moving to the second quarter 2026 results. On the next page, I will start with a few highlights. Revenue grew 6.3% and excluding the impact of the contracts, we intentionally reduced revenue from services would have grown more than 10% year-over-year. We signed BRL 2 billion in new contracts during the quarter, coming to almost BRL 3 billion in the quarter and supporting the resumption of growth as we had anticipated. Important to emphasize, however, is that the new contracts will ramp up gradually and the BRL 33 million in average monthly revenue will only be fully reflected in our revenue as of the second quarter '27. Leverage, we are on the right track reaching 2.7x this quarter and showing that the strategy is working. Cash generation after interest payments, lease payments and acquisitions reached BRL 164 million in the quarter, bringing the total for the last 12 months to BRL 870 million. At [ Interlock, Francisco Nevera and Ludmila Lavine ] is joining the team to lead commercial and people functions, respectively. And to highlight 2 areas of revenue growth, JSL Dedicated services operating with third parties grew 22% year-over-year, and JSL Digital, 42% also year-over-year, demonstrating the scalability of the 2 businesses. On the next slide, I'll walk through a few numbers. Consolidated revenue, BRL 2.9 billion; EBITDA, BRL 494 million, margin of 19.8 is stable compared to the first quarter of the year. It's worth remembering that this was a quarter marked by significant volatility in diesel prices regulatory developments with the provisional measure [indiscernible] law introducing a new may phase of minimal freight rates in Brazil. Net income of BRL 30 million already reflects the benefits of deleveraging and [ exiting ] of contracts that did not meet our expectations. Returns is stable with [indiscernible] running rate at 14.6%, bringing those figures down by business, JSL dedicated service with on fleet reached BRL 1.5 billion in revenue, EBITDA of BRL 255 million, margin of 20.4%. This is where we will see the benefits of comfort discontinuations we have been discussing, both in gross and EBITDA margin. JSL dedicated services operating with third parties closed the quarter with BRL 654 million gross revenue, EBITDA margin of 18%. This was the business most affected by diesel price volatility during the first half of the year. JSL Digital closed the quarter with BRL 227 million revenue, EBITDA of BRL 14 million. EBITDA impacted by the migration of the grain transportation business, which is now part of the segment, combining JSL dedicated service operating with third parties and JSL digitals, both which operate a subcontracting model, we have a business with BRL 900 million in revenue, BRL 150 million in EBITDA in the quarter. On [indiscernible] basis, that represents a business with approximately BRL 4 billion in revenue, BRL 450 million in EBITDA, more than 20% growth in the year. Internal closed the quarter with BRL 611 million in revenue, EBITDA of BRL 120 million. The next few slides provide some additional details on the businesses. I've already covered the numbers, so focus on the growth profile of each business. JSL dedicated services. Automotive was the fastest-growing sector year-over-year. 33%. Still mining and chemicals grew 29% and 14%, respectively. E-commerce here growing 12% and although it leads growth at JSL [ set ] will also show shortly. The figures and operating profiles for the own fleet and third-party operations are presented on the following slides, and we can discuss them later during the Q&A. JSL digital, Page 7. As I mentioned, e-commerce leads growth, increasing almost 2.5x. Steel and mining, chemicals and automotive also grew strongly, 77%, 75% and 43%, respectively. Slide 8, [ Interlock]. As a reminder, this is the company we created to combine JSL warehousing and intralogistics operations with [indiscernible]. Created with 2.4 million square meters under management, 15,000 employees and operations across 14 Brazilian states, one of the largest companies in the industry, only one of its size with Nation mine operations. Quarterly figures. [ INTRALOT ] closed the quarter with BRL 611 million revenue to BRL 120 million EBITDA. And as I mentioned, these figures reflect the need for operating adjustments. During the quarter, we also signed BRL 330 million in new contracts at [indiscernible], which will begin contributing to revenue over the coming months. you can see that [indiscernible] strongest growth comes from the airport sector, which I believe has great potential for expansion. To sum up, [ Bruno's ] mission in [ Intralog ] is to focus on growing the business enhancing our solution for clients and optimizing operations, already integrating JSL and TPC operations. The growth profile I have just described about each of the business confirms the scale of the opportunity in the sectors we have selected as priorities and the way we directed commercial strategy. I believe the majority of the strategy is still out there, and we still expect to see benefits over the coming quarters. You may be asking what has declined given the growth we have seen across our key sectors. On the next slide, for the first time, we show JSL's contract renewal rate, which remains healthy at 97%. That excluding the intentional discontinuation of certain contracts, as I mentioned earlier. Including discontinuations, the rate for the quarter was 93%. This is the gap we need to make up in order to return the company's historical growth rates. The sectors that have typically weighed on our growth were pulp and paper and agribusiness, down 15% and 70% year-over-year, respectively. On the other hand, as I mentioned earlier, we signed BRL 2 billion in new contracts, this contract, including the largest contract in Pulp & Paper, which will bring growth back to the industry now with pricing that reflects the current cost of capital. Another very important point is that we added 5 new clients to our portfolio. Those further reinforces that we are on the right track with our commercial strategy. With that, I'll turn it over to Eduardo to walk you through JSL's financial results. Eduardo?

Thanks, Guilherme. Good morning, everyone. As we saw throughout Guilherme's presentation in the second quarter '26, we continue to advance our growth agenda, accelerating from what we saw in the first quarter with all 3 segments now growing year-over-year. Consolidated net revenue grew 5%, both year-over-year and quarter-over-quarter. I want to emphasize, this was already the dynamics we expected for this year with growth gradually accelerating over the course of the year. As you saw on new contracts, looking ahead, our plan is to continue along the test. I want to highlight, once again, the diversification of services and sectors. This is what gives us resilience of results and agility to adjust course whenever necessary. EBITDA margin remained stable at around 20%, in line with the first quarter of the year. The 0.8 percentage point decline compared to the second quarter last year was mainly due to certain nonrecurring effects recognized in that period, retroactive revenue adjustments that did not recur this quarter. The process we've been discussing over the past several years, intentionally reducing nonprofit operations and adjusting contracts either through price adjustments or efficiency and cost reduction initiatives should contribute to further margin improvement. EBITDA margin followed a similar trend with EBITDA margin, compared to the first quarter, however, EBIT improved as depreciation declined in line with the smaller asset base, partially offset by higher right-of-use asset amortization due to greater volume of leased assets. Net income was BRL 30 million in the quarter, a significant improvement compared to the first quarter of this year, mainly reflected the return to growth while maintaining operating margins. Even so, the bottom line remains under significant pressure from interest rates. ROIC was 14.6%, stable from the first quarter. This is an indicator that should improve over the medium term as a result of several initiatives taken, including lower CapEx through asset leasing strategy, a more efficient capital structure as leverage continues to decline and the removal of low profitability contracts and divested assets from the calculation base. On the next page, we bring a few capital structure indicators. The first point I would like to highlight is the continued reduction in both gross debt and net debt compared to the second quarter of '25 and first quarter this year. This results in more efficient capital structure and should contribute over time to lower debt service and consequently, greater conversion of operating results into net income. In terms of covenants, leverage, measured as net debt EBITDA added ratio was 2.46x compared to a maximum limit of 3.5x. Interest coverage measured as EBITDA added over net financial result was 2.4x compared to a minimum requirement of 2x. The chart in the bottom left-hand corner of the page shows the trend in leverage using traditional EBITDA adjusted here to exclude the effects of the S system. We can see that this indicator has declined consistently over the past year, reaching 2.7x in the second quarter '26, 0.5x lower than the second quarter '25. Comprehensive leverage, which includes right-of-use lease liabilities, we see the same trend with a 0.4x reduction compared to the second quarter last year. Our cash position at the end of the quarter was BRL 1.5 billion, together with slightly more than BRL 200 million in committed credit line does give us total liquidity of BRL 1.7 billion, sufficient to cover our debt to [indiscernible]. The average maturity of the debt is 4 years. On the next page, we bring an analysis of our second quarter cash flow which once again demonstrates our strong operating cash generation, which is sufficient to cover both investments and debt. Cash flow after investments, interest payments and lease payments totaled more than BRL 160 million this quarter alone. Looking at the last 12 months, cash generation exceeded BRL 860 million representing a free cash flow yield of approximately 56% based on the company market cap at the close of trading less attractive. On the following page, we can see how our asset leasing strategy directly supports cash preservation and contributes to improving the company's capital structure through lower leverage and over time, higher returns. The mix between additions of right-of-use assets and property, plant and equipment over the past several quarters shows that on average, leasing has made greater economic sense. Gross CapEx has been lower than the total asset sales in each of the last 2 quarters. The transition coincides with the strong free cash flow generation we have seen over the past several problems. We still have significant inventory of assets available for sale, which will be converted into cash over the coming months, continuing deleveraging and improved returns. On the next page, we also again compare JSL with publicly traded peers outside Brazil. I want to emphasize that the information on the space became from public sources, not produced by the company. This is just for illustrative purposes, none of the figures should be construed as being endorsed by the company. Here, we show a 5-year CAGR growth over the last 12 months ended June '26, EBITDA margin and ROIC for JSL combined -- compared to the 4 logistic players we presented in previous earnings release on listed in the U.S. JSL outperforms this peers across most of these metrics. And yet, when we look at valuation multiples, EV, EBITDA and price to earners, JSL trades a significant discount to this peers. With that, I turn the call back to Guilherme to complete the presentation and I'll be available for your questions.

To wrap up some comments. First, I strongly believe that JSL's competitive advantages become even more evident in a market under pressure from tight credit and higher interest rates. I have consistently emphasized our discipline in pursuing high-quality growth, positioning ourselves at essential points in our clients' logistics chains with the right business model. This will support sustainable growth with returns that are appropriate for the current cost of capital. Another key priority is JSL's digital transformation using technology as a tool to drive scale and performance. Diligence in effectiveness of investments, keeping focus on the quality of services and profitability of our businesses. During the second half of the year, we'll make further progress in reorganizing the companies to ensure a dedicated focus on own fleet operations and third-party operations. We also remain committed to deleveraging through business growth and cash generation. Before I close, I'd like to welcome 2 new members, among who is returning to JSL as member of the Board of Directors; [indiscernible], who represents [indiscernible] par following the recent completed transaction. Welcome, both of you. Lastly, I would like to reaffirm our confidence in achieving our 2030 gross revenue guidance of BRL 21.4 billion. Our results and the early signs from the changes make us confident that we are beginning a new growth cycle at JSL. With that, Ed and I are available to take your questions, and we thank you very much.

[Operator Instructions]. Our first question comes from [ Matheus Sant'Anna ] from [indiscernible].

I have 2 questions. The first is thinking about your guidance for 2025 when you make a comparison between '25 and 2030. You have about BRL 2 billion revenue, considering what you had this quarter. You're talking about 400 per year. Does it make sense to do this path? And what could we consider is the target of contracts closed per quarter to reach this target? And the next question is how you see your commercial efforts moving on? How do you think you can get to this target? I'm thinking a pace of growth for the second half of the year. These are my 2 questions.

This is Eduardo speaking. First, thanks for your question. I'm going to answer the first part about the guidance, and then Guilherme is going to talk about our commercial structure guidance. Remember, the 21.4 million is nominal guidance. So we have part of it of price adjustments in existing contracts. This is part of the amount, which offsets our average churn that we did disclose. We have an organic route of 97% of our contracts. So if you consider an inflation in the mid long term, we have these values offsetting and then we have the addition of new contracts. And as you very well put it, the BRL 2 billion that we had in the first, second quarters would be more than enough if we did keep the pace to reach our guidance for 2030. But it's very important to see the whole, if we put together the BRL 2 billion, how much it represents a monthly average revenue with what we did in the first quarter. We understand that we are very much in line with what we need to reach the guidance that we have established for 2030. We don't know exactly what the pace per quarter is going to be in terms of total volume of added backlog because it depends the average term of contracts, which is the most important. So you are talking about BRL 33 million per month if you consider this period. As we have very, very high renewal rate, most of our contracts are renewed, and that's the most important. The average added revenue, which we believe is at the right pace for us to deliver the guidance of 2030.

[indiscernible], this is Guilherme. Just adding to what do mentioned and talking about our commercial efforts, we did disclose some companies for each one of the company's dedicated services, interlog and digital. And you can see -- as you remember, the history of our calls, we talked about some industries in which we saw an opportunity to grow and we are organizing our commercial department focus on that. So when you think of automotive growing, very much driven by the Chinese OEMs coming to Brazil. e-commerce, steel and mining. These are all sectors that we mentioned are sectors in which we had huge opportunity to grow chemicals. The only number that is still missing is pharmaceuticals. That's still already showing the results, but it's still a sector that has a lot of opportunities to grow. So that was reorganization made in the end of last year. Obviously, we added new people. We put together teams strategy. We rethought the business and we obviously believe we are going to have still greater benefits in this new structure and consequently bringing the volume of contracts up for the future. What I do mention and I do agree it is very important to build the average term of the contract for us to see what the added revenue is going to be. It's hard to have a target per quarter but obviously, a volume of BRL 2 billion in the last 5 years, disclosing JSL. I think there has been seen once or twice. It does happen, but it's not a standard. So obviously, we are going to work for this number to be greater and greater, but we cannot have this number as a reference, okay? I hope I have answered your question. If not, you please ask for your follow-up.

Our next question comes from [ Juan Agathon ] from XP.

I have 2. The first is about margins. We did see in intra mainly one-off margin effect this quarter. I'd like you to try and explain what was -- that happened this quarter and dedicated services. This is a segment that, in general, has a lot of effect of price-throughs, but you did see an important margin recovery. Is this the effect of pass-throughs or do you already see the fact that you terminated nonprofitable contracts? And about CapEx, you see that gross CapEx is going down. Cash generation is going up consistently. My mindset is to try and understand how you see CapEx and cash generation for the future? And how does this relate to growth? My question is whether this scenario of possible growth and change of strategy for leased assets will continue or if there is a limit for you to start having to invest CapEx again to resume growth.

This is Guilherme. Okay. Margins intro. I'm going to show you the number for the first half of '26 compared to '25 flat with EBITDA margins flat. So what I want to tell you is the following. We have one-offs of quarter. I'll give you some volume of retroactive revenues that we had in 1 quarter and not in the other negotiations of collective bargainings change in a large operational site to provide operations to a client whose operations increase that they needed more space and the revenues of that will show in the future, but we did have the costs in the second quarter. You have some other specific points that led to a mismatch 1 quarter from the other. But when you see the first half of the year, the margin is flat, up for '26. So this is the number that we think is closer to [ Intralox ] reality. We did say that in the past. So when we look at the first half year, we do not see a change in behavior in terms of margins. It's just some mismatch between the first and second quarters. Dedicated services, then you are right, this is segment, this is the JSL company that would be most affected with the volatility of diesel prices and the impact of diesel cost is on freight. But the margin speaks for itself. We have been able when never necessary to pass through costs to our clients. And we reorganized operations. We reduced impacts to our clients. We had changes in terms of operating changes. It was a very intense quarter talking to clients, redesigning operations. But you're also right about what you said in terms of dilution of the termination of contracts. We did have a cost of terminations when we increased the number of terminations of contracts. We do have a cost related to that, just for you to have an idea. We had 850 people involved in the operations that we terminated. So you have the dismissal of people, the selling of assets and retirement and then selling of assets. So we do start to see especially with dedicated services with that much weight, that cost we had and now it is just to wait for the maturity of new contracts and recycling contracts, which is normal. Every cycle or so, we have to do that. Second question, CapEx if the level of growth would change our strategy? No, we want to continue leasing assets whenever economically feasible. I do not see any kind of bottleneck in this strategy of growth. given that it will depend a lot on the growth of profile, whether I need my own operations, third parties independent contractors -- that will depend a lot on what new clients demand, but I do not see a restriction or a need to change this profile. So we will continue to have the leasing strategy whenever possible, preserving cash to continue accelerating deleveraging. And once again, this is something that we always say to translate the better operational efficiency of the company into profit. I hope I have answered your question. If not, just give me a follow-up.