Log-In Logística Intermodal S.A. (LOGN3) Earnings Call Transcript & Summary

Good day, everyone. Welcome to Log-In Logistica Intermodal conference call to discuss third quarter 2022 (sic) [ 2023 ] results. My name is Sandra Calcado. I'm Log-In's Investor Relations, Strategy and ESG Manager, and I will be your hostess during this event. The presentation and comments about the results will be made by Log-In's CEO, Marcio Arany; Pascoal Gomes, CFO and Investor Relations Officer; Felipe Gurgel, Chief Commercial Officer; Gustavo Paixao, Terminals Officer; and Mauricio Alvarenga, Tecmar Transportes Officer. They will comment on the company's performance and main highlights of the quarter. Then they will be available to answer questions that you might have. The slides presentation and earnings release in both Portuguese and English are available in the Results Center at the company's IR website and we will be showing the presentation in Portuguese here on Zoom. In addition to the rooms available in Portuguese and English, we will also provide Brazilian sign language interpreting during the whole event. I'd like to remind you that all participants will be in listen-only mode during the company's presentation. Later, there will be a question-and-answer session when further instructions to participate will be provided. Be advised that this webinar is being recorded and will be available on the company's website. Before proceeding as usual, let me clarify that forward-looking statements that might be made during this conference call relative to Log-In's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's management and on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Log-In and could cause results to differ materially from those expressed in such forward-looking statements. Now, with the legal disclaimers made, I'd like to turn the floor to Marcio Arany, Log-In's Chief Executive Officer, to start with his initial remarks.

Good day, everyone. This is Marcio Arany speaking, the company's Chief Executive Officer. I would like to thank you all for joining us in Log-In's Logistica Intermodal Third Quarter 2023 Earnings Video Conference Call. We will start our presentation on Slide 3 by reviewing the main achievements of our strategic plan in 4 blocks: coastal shipping; TVV and Terminals; Road Cargo Transportation; and ESG capital structure, which permeate all the company's business lines. Next, we will present our results. In our Coastal Shipping business, we highlight a historical adjusted EBITDA record of BRL 132 million, an all-time high Cabotage NOR of BRL 373 million, a historical record in coastal shipping container handling with 136,000 TEUs and 0 theft and robbery of road cargo in our door-to-door service. In TVV & Logistics Solutions, we highlight TVV's historical EBITDA and NOR records, BRL 46 million and BRL 91 million respectively, and a record volume of containers handled with 54,200 boxes of containers. Regarding Road Cargo Transportation, we highlight 990 TEUs handled in a joint operation of Tecmar and Log-In in Q3, the best level of service in Tecmar's history and progress in the integration of Oliva Pinto with Tecmar. The fourth and final point relates to our ESG agenda and capital structure, where we highlight the company's 10th consecutive profitable quarter, the lowest financial leverage in the company's history, 1.3x. The first ESG Week held. The second selection process for young apprentices in the underprivileged communities of Providencia and Ilha das Flores, and we would also highlight the start of the ERP deployment at Tecmar. Next, our team will present the results of the quarter, starting with our Chief Financial Officer, Pascoal Gomes.

Thank you, Marcio. Good day, everyone, and thank you for being with us today. I think that Marcio has already mentioned in the highlights that this was another exceptional quarter for Log-In with very strong results in all business lines, with all business lines growing. I believe that the big highlight this quarter is Coastal Shipping. The Road Cargo Transportation business line is also growing really well. It's doing the work that we designed for it during the acquisition plan for this new business that complements Log-In's business. TVV was amazing with containers handling the 3PL line grew. In other words, we have results here in all business lines that are positive for the company. In the consolidated result, our net operating revenue was BRL 623 million in this quarter, up 19.3% compared to the same period last year. And this is explained mainly by the historical high NOR of Coastal Shipping that grew 23% over Q3 '22. And the big growth driver here was the new service SEA or Amazonas Express Service in the Cabotage trade mainly. We announced this to the market. With a reduction in the frequency of shipments, now it's a weekly service with more capacity, and this has helped growth both in terms of volume and revenue for Coastal Shipping. The Road Cargo Transportation business line, represented by Tecmar and Oliva Pinto, was positively impacted by the inclusion of Oliva Pinto in the company's results as of Q1 '23. This is not in the comparison of the previous year. Tecmar in the 9 months had 2 less months, so we acquired it in March of last year and it has been adopting, as we will see in Alvarenga's presentation, a new pricing strategy, which is linked to the evolution of the level of service. There is an EBITDA margin reduction. This is due to a current, but one-time off event that was positive in Q3 2022. The reversal of Tecmar's contingencies and a package of guarantees that we structured for the acquisition of Tecmar and we have been reversing this as the risk does not materialize. So this reversal was in the amount of BRL 19 million in Q3 2022. Talking about adjusted EBITDA, the variation quarter-on-quarter was 5.4%, posting BRL 174 million approximately, the highest result for a quarter in the company's historical series. And again, the mainly contributor was Coastal Shipping, which reached BRL 132 million, another record-breaking of EBITDA in the quarter. The Road Cargo Transportation also had a positive contribution with BRL 12.9 million contributed, up 90% over the same period of the previous year. Also, because of the increase in Cabotage volume operations, we observed an increase in AFRMM because this is a rate of the Cabotage revenue and AFRMM added BRL 7 million in the period. In the 9 months of 2023, the highlights are the 11.6% growth of adjusted EBITDA and 14.3% growth of NOR. Again, here, the Road Cargo Transportation business added BRL 130 million to the NOR year-on-year, again, especially with the inclusion of Oliva Pinto from Q1 '23 onwards, as well as 2 more months of results, as I mentioned, of Tecmar as these started being reported from the date of Tecmar's acquisition in March of 2022. In addition, Cabotage NOR also grew 22% over the 9 months of 2022, impacted mainly by the inclusion of the new Amazonas Express Service where we have 2 additional vessels in operation compared to the capacity that we previously had. Well, on the next slide, I would like to present the reconciliation of adjusted EBITDA and its main source of equalization is the revenue cut-off. The cut-off is nothing more than the proportional deferral of revenue from transportation service started, but not concluded in the last month of each quarter, it continued in the next quarter. This happens every quarter, and this is what we show here in this bridge chart, showing that we start with an EBITDA in Q3 2022 of BRL 135.5 million. We adjust for the revenue cut-off for that quarter and we get an adjusted EBITDA of BRL 165 million for Q3 '22. This figure compares well with the BRL 173.9 million in Q3 2023 of adjusted EBITDA adjusted also for the cut-off, and this represents a growth of 5.4%. To continue the presentation on the next slide, Marcio kind of mentioned this, but I would like to share with you another important milestone in the company's history. In Q3, we recorded the 10th consecutive profitable quarter of the company, and this result stems from the better, consistent and robust operating performance of the business and also stems from adequate leverage. With that hedge protection that we had for foreign exchange variation resulting from the portion of the debt that we have with BNDES, which is pegged to the dollar. And in Q3 '23, net income was almost 13% higher than the same period of the last year, Q3 '22. I now hand over to Felipe Gurgel, our Chief Commercial Director to speak a little about our Coastal Shipping business.

Thank you, Pascoal. Good morning, everyone. Thank you for joining us. This is Felipe Gurgel speaking, Chief Commercial Officer. As Pascoal pointed out, and as Marcio also mentioned, we had another record quarter for the company. Specifically, in Coastal Shipping, we achieved our best historical volume in -- results in volume, revenue and EBITDA. I'll start on Slide 8 by highlighting our 19th growth in the volume handled. And it's worth pointing out the significant 30% growth in Cabotage, achieving the highest volume handled by the company. In this quarter, according to data from the Brazilian Association of Cabotage Shipowners, ABAC, container cabotage in Brazil grew by around 6.3%, reinforcing Log-In's increased market share in this type of transport, mainly due to the increase in capacity with the arrival of 2 new vessels and the implementation of the new service to Manaus, the Amazonas Express Service. In September, this service started to be weekly. There was also a significant 21% increase in volume handled in the Feeder cargo trade in the period due to the signing of new contracts and opportunities that arose along the quarter. However, Mercosur continues to see a reduction in volume caused by the serious prices in Argentina, which has reduced cargo handling volume between the 2 countries. Now moving to Coastal Shipping revenue. Revenue grew about 22.7% over Q3 '22, an all-time high record for the company, totaling around BRL 373 million, driven by the increase in volume and the mix of cargo transported. Year-to-date and for the first time in a 9-month period, we posted net revenue just over BRL 1 billion. Adjusted EBITDA for Coastal Shipping totaled BRL 132 million, up 22.7% year-on-year. And year-to-date, the 9 months of 2023, we posted just over BRL 360 million, 10% more than the previous year. This excellent result is due not only to the revenue posted in the quarter, but also to important cost-cutting initiatives that our teams carry out every day. Lastly, I would like to underscore the increase in year-to-date EBITDA margin of 1.2 percentage points quarter-on-quarter, reaching 35.4% in the 9 months of '23. This represents the engagement of the whole Log-In team that has been putting into practice all initiatives towards achieving our robust growth plan. Now, moving to the next slide, I'd like to give you a quick overview of the current drought situation in the Northern region of Brazil. As widely reported by the media and leading authorities, the depth of Negro River has reached its lowest level ever recorded as we can see in the chart, the red line, the current curve compared to the yellow curve, which is the lowest historical curve. This depth reduction has been impacting and severely restricting the [ ability ] of the main vessels serving the region. This restriction began in mid-September with a partial restriction. And in October, this evolved to a total restriction on regular route vessels, with the river having reached its minimum level on October 27 at 12.7 meters; after that, showing a trend towards stability. As a result, all Cabotage and long-haul services were unable to serve the Manaus region. During this period, the government authorized the emergency dredging of 2 restriction points. These works are underway, but we have not yet been able to assess when they will actually change the current situation. In view of this scenario and in order to minimize the impacts on the region's supply as well as to support the flow of production from the Manaus industrial hub, Log-In quickly mobilized to offer an alternative solution, a road-river alternative using ferries and barges in partnership with companies in the region to serve its customers both to and from Manaus. This solution is still in operation and has transported more than 2,000 TEUs to date. However, obviously, due to the limited capacity of these ferries and barges as well as at the terminals, there is a significant impact on the volume of cargo handled compared to what was being transported by our ships. Log-In continues to monitor the evolution of the level of the river as well as the emergency dredging operation. And as soon as the company concludes that, navigation can take place safely. We will resume service with our vessels to the region. We expect this towards the end of November or beginning of December. These are the main highlights of Coastal Shipping. I'd like to thank you for your attention and turn the floor to Gustavo Paixao, who will present the results for terminals.

Thank you, Gurgel. Good day to everyone. This is Gustavo Paixao, Log-In's Terminals Officer, and it is a pleasure to be here to share with you TVV's results for the third quarter of 2023, a period in which we had many positive highlights. Talking about volumes in our main business, which is container handling. We had an outstanding growth compared to our results in the same period last year. In Q3 '23, we grew by 25.6%, an exponential growth handling 54,200 containers, achieving the Terminal's best-ever result. And I would highlight a strong recovery in coffee export volumes. Coffee has always been one of the main products handled at TVV and which is now showing an important upturn, largely due to a better scenario in relation to other coffee producing markets in the world. Another highlight, which contributed significantly to this quarter's result was the high volume of imports of containers [ contain ] vehicles. This being the result of the new direct to Brazil-China route and the development of a contract-bound weekly birthing window at the terminal. With that and the year-to-date, we also showed a good recovery compared to the same period of 2022, reaching the mark of 128,000 containers handled, up 4.5%, recovering the results of the 2 previous quarters. When we look at general cargo volumes in turn, we already have a different scenario. Comparing the third quarter '23 with third quarter '22, handling was down 22.6% with 232,400 tons handled. And this is the result of 2 main factors; Number one, the strong handling of general cargo in Q3 of last year, which was basically opportunity at cargo with spot opportunities -- spot operations carried out, and this was not repeated in the same period this year. And secondly, the exponential increase in container handling at the terminal in this period, which reduces our capacity to handle spot cargo of projects. Even so, it is an outstanding result given the multipurpose profile of TVV and one which has been contributing to our results every quarter. As a result, in year-to-date, we have handled 15.4% less year-on-year with year-to-date handling in 2023 of [ 657.4 thousand ] tons. Now talking about the financial results of Q3 '23, we have achieved historical high records not only in the quarter but also in the year-to-date in the lines of net revenue and adjusted EBITDA, which reinforces the Terminal's good commercial, operating and financial performance. In terms of net revenue, in Q3 '23, we posted a net revenue of BRL 91 million, up 8.3% compared to the same period in 2022. In the year-to-date, we posted BRL 256.9 million, a result 6.6% higher than last year. Turning now to our adjusted EBITDA. In Q3 '23, we totaled BRL 46.4 million, increasing 6.9% over Q3 2022, which brings us to BRL 124.6 million year-to-date, up 10.2% over the 9 months of 2022. And well, as I said at the start of my part of the presentation, we had a third quarter with many highlights and record marks, which result from all the work done to improve TVV performance, supported by investments and all the commercial and operational work that has been going on at the Terminal for some time now. This has placed us in a prominent position as a multipurpose terminal on the logistics scene in Brazil and has attracted new business to TVV and the state of Espirito Santo. This concludes the presentation of the Terminal's results for Q3 '23, and I now hand over to Mauricio Alvarenga, Officer in-charge of Tecmar Transportes and Oliva Pinto, to continue the presentation of the results. Thank you.

Thank you, Gustavo. Hello. Good morning, everyone. My name is Mauricio Alvarenga, Executive Officer in-charge of Log-In's Road Cargo Transportation business unit, and I'm going to give you some highlights of the quarter. We had an excellent third quarter in 2023 with a positive evolution in several indicators. The highlights on the slide are the 19.6% increase in net revenue and the 88.8% increase in EBITDA with significant expansion of our EBITDA margin, and this is quite relevant, quite important. Year-to-date, as Pascoal has mentioned, the comparison is kind of hampered by the fact that the integration of Oliva and the acquisition of Tecmar that happened in March of 2022. But when we analyze the average for each month, we can see a good performance, regardless of this comparison, which gives us a very positive outlook, because we're improving every month compared to last year. Moving on to the next slide, Slide 11, I would like to comment on the performance of other indicators and some achievements. Number one, speaking about level of service. We are working hard for Tecmar to be recognized in the market as an operator of excellence. And I'm specifically talking about on-time delivery. And we are being recognized by the market and we'll continue to work strongly for this to be a very positive differential for our company. This quarter has been a quarter full of highlights for us. We're also growing strongly in our container transportation operations. And by this -- let me explain clearly what I mean by this. I'm going to divide this into 2 separate business. The first business is the container transportation from the port to the customer, from the customer to the port. You were used to listening to us talk about coastal shipping being a door-to-door service and Tecmar is already operating in 2 regions with this kind of transport in addition to Oliva Pinto in Manaus. So Oliva Pinto was already an expert in this kind of transport. And today, this kind of transport for us, in other words, we do the inland, the intermodal approach of the operation from Cabotage and international cargo, imports and exports of some customers. This already accounts for around 9,000 trips for Tecmar in the quarter. So this is quite significant. And we've been evolving, growing, making investments and putting a lot of effort into improving this operation. Now, the second operation is slightly different. That's when Tecmar transports cargo of customers that operate parceled cargo. Before the acquisition, we could only transport on highways, but now Tecmar offers the market 2 options. They can continue to do long-haul transportation on roads, on highways, but they can also transport their parceled cargo by sea. In other words, using Cabotage. In this case, connecting the synergies of our structure of collection, delivery, warehousing and distribution of the Tecmar network, joining that with the strengths of Cabotage and long-haul transport. In other words, Tecmar is offering the market a differential that other operators cannot offer the market, which is a multimodal approach with a competitive pricing differential, but mainly with a reduction of CO2 emissions, which is quite significant, more than 70% of CO2 emissions. And this is a differential of Tecmar in the market. In this quarter, this was a positive highlight because we had almost 9,000 -- we had almost 1,000 TEUs. We had 990 TEUs transported. So this is a business synergy. This creates a value for Tecmar and it also creates value for the Coastal Shipping business as Felipe Gurgel has mentioned. Another business front we are developing is in the North region of Brazil. This is very recent. At the start of the year, we started operating the distribution of parceled cargo in the North region, and we're improving. More recently in Q3, we sent what we call a reach-stacker. It's a piece of equipment to load and unload containers from trucks. So, we sent this equipment to the terminal that we have in the city of Boa Vista in the state of Roraima. We believe a lot in the potential of this region, and which has been developing well in recent years. And our terminal in Boa Vista is a differential in the region. There's no similar structure there. We started offering the service of storing containers and what we call plugging in. In other words, the terminal has electric outlets. We connect refrigerated containers and these containers can be stored there for a while. So the trucks no longer have to be in a queue at the customers for 1 or 2 days. So this is a differential service that we are offering in the region. And this is offered not just to the Log-In Group, but also to other direct customers who require this kind of service. Another important front that we are working with, which is not on the slide, but that I could mention is the development of our leaders -- leading team, we are training. We are developing our leading team because after all, at the end of the day, they are the ones that will be driving the change in culture and improving the results of this business line. With that, I'd like to thank everyone for joining us in this conference call. And I'll hand over to Pascoal, our Chief Financial Officer and Investor Relations Officer, to continue with the presentation.

Thank you, Alvarenga. To continue the presentation, I think the highlight here that Marcio already mentioned at the start is our leverage, expressed by the net debt over EBITDA ratio, which was at 1.3x in Q3, the best result in the company's historical series. And I said this before, this is the result of a very robust and consistent operating result, trading performance, together with -- combined with an active management of the debt portfolio of the company. In terms of cash, I think that we have a very positive message here of a stable cash and with the investments we've been making the acquisition of vessels, the TVV modernization project, vessel maintenance, et cetera, plus investments in Tecmar and in the road transport and the last 12 months EBITDA that has been increasing consistently in recent quarters, and this has helped deleverage the company. Yesterday, we announced to the market a new funding. So this is also in our IR website, an advisory about this. In this advisory, we made clear that this is to rebuild our cash, given all of these investments we've been making. There is an important milestone in Q4, which is the receipt of the first of the 2 vessels that we are building. So that's an important payment milestone. So this new funding helps rebuild our cash. Although, this is not really directly linked to this project. The vessels are not a guarantee for this, but here, we have our amortization schedule. And if you know the history of the company, you know that this has been a lot more challenging or was a lot more challenging in the past, and this is way within our possibilities now. Of course, we'll always be looking at investment opportunities looking forward. I think that this level of leverage makes room for this, and we will continue to actively manage our debt to improve our leverage and indebtedness profile. Now, I turn the floor to Marcio Arany, our CEO.

Thank you, Pascoal, Gurgel, Gustavo and Alvarenga. We will now begin the Q&A session. We're all here at your disposal. Thank you very much.

Thank you, Marcio. We will now begin the Q&A session. If you want to ask a question, you can use the raise hand feature, which is located on the bottom part of your Zoom screen so that your microphone can be enabled. Those of you who prefer to send your questions in writing, you may do so using the Q&A button also located on the bottom of your screen. Questions received in writing will also be answered live. We have a question by Joao Frizo. He'll be asking the question live.

I have 3 questions. The first, I'd like to understand your commercial decision regarding Coastal Shipping and TVV. When we look at Q3 volume, there was strong growth, greater than 30% quarter-on-quarter in both services. But when we look at the unit tariff, it dropped on average 15% both at TVV and in Coastal Shipping. Although the results are still net positive, I'd like to understand, what are you thinking in terms of focusing more on volume, perhaps with a lower price to stimulate demand? And what could we expect in terms of the commercial strategy for Q4 and beginning of 2024? My second question regarding the drought in Amazon -- in the Amazonas state., I'd like to understand what are you doing with the vessels? You had 2 vessels operating there? One is your own vessel, the other one is chartered. Will you be docking these vessels or what are they doing now, given that they are not being used in the operation? And thirdly, regarding leverage, as you have just mentioned, leverage has been trending down for several quarters now. I'd like to understand what is your target indebtedness level for the company in the long term? Thank you very much.

Thank you for the questions. I will answer some of them, and then my colleagues will add to my answers. Regarding the decision -- the commercial decision for Coastal Shipping and TVV. In our Coastal Shipping business, we work with cargo with all kinds of margins, depending on the market where we are operating and the distance we are traveling, the margins can be higher or lower. We increased capacity in the Northern axis and we continue with our tradition of converting cargo from road transport to sea transport. So this is the result of a mix of cargo that ended up happening naturally. But we continue strong in the road cargo transport. And why did we increase capacity? Because we had just 1 vessel, and we now have 3. And as regards to TVV, I ask Gustavo, please, to answer the question.

Perfect, Marcio. Thank you for the question, Joao. This is in keeping with what Marcio said, it's the mix of cargo. TVV also has this characteristic. The only difference is that we have a strong share in these volumes of this new service. It was developed directly. This direct route between Brazil and China and it has a lower contribution margin. And since it has a high share of this volume, it brought our average price down. But like you yourself said, we're still net positive, maintaining the growth of the terminal and the margins, the positive margins of the terminal, as has been happening in recent quarters. And again, thank you for the question.

And as regards the drought of Amazonas, I'll turn the floor to Gurgel, and then Pascoal will talk about leverage.

Thank you, Joao, for the question. As regards how the vessels are being used, we had in the new service launched in September, it started being a weekly service to and from Manaus. We had a joint agreement of the space. We have this new agreement, and we have 3 vessels. The other ship owner has 1 vessel. Of these 3 vessels, we mobilized them to operate in the coast going all the way to [indiscernible] and we relocated one of the vessels to another service, and one of the vessels was temporarily stopped for preventive maintenance. So now the vessels are operating in the Southeast and Northeast axis. And the cargo is getting to Vila do Conde at this moment. The cargo going to Manaus through this alternative solution we built, they're going to Vila do Conde through an agreement with another ship owner using their space. This is what we designed, what we had to actually redesign in our fleet, aiming to reduce exposure to cost, particularly fuel and maintaining frequent and regular costs to the main ports of Brazil.

Joao, thank you for the question about our debt. We don't work with a net debt over EBITDA ratio target. We can get up to 3x net debt over EBITDA with a tighter margin for our debt covenants. But this deleveraging trend of the company played a very important role in the history of the company. If you've been following Log-In for longer, you know that there was a moment that was very hard and difficult in the past that led to a turnaround in the company. And this is an important message -- this was an important message to the market. We needed to show important debt control while we grow the company. And this has been translating into an improvement in our credit ratings. Of course, we start a virtual cycle. We can have better funding in order to, again, fund the growth of the company. Now, looking forward, we have an expansion plan. We are always looking at new opportunities. Our business lines have their own investment needs, particularly Coastal Shipping, and at this moment, Road Cargo Transportation, because these are business lines, they're still ramping up, unlike TVV, which is in its final phase of the expansion project. And we are financially planning and preparing the company to be able to make these new investments for expansion, updating of our assets, and possibly new opportunities. In other words, interesting inorganic possibilities that might help us carry out our strategic plan.

As there are no more questions, I would like to thank everyone for your participation and I turn the floor to Marcio Arany for his final statements.

Well, we closed a spectacular third quarter, as you could see, in all our business lines, with all businesses doing really well, breaking several records. In Coastal Shipping, we were able to handle significant volumes to fill the additional capacity -- the increased capacity that we've put on the market. This was very positive for us. We launched the Amazonas Express Service and we went to the market and we were able to handle most of this cargo. Now, due to the drought in Amazonas and the excessive rainfall in the state of Santa Catarina in the South, this happened along the month of October, we will have a challenging fourth quarter for the company, and our team will have to work with creativity and dedication to continue to achieve good results. Lastly, I can only thank all of you for joining us in our conference call. Thank you very much.

Thank you. The conference call of Log-In Logistica Intermodal to review Q3 2023 earnings is ended. You may disconnect and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]