Mills Locação, Serviços e Logística S.A. ($MILS3)

Good afternoon, ladies and gentlemen, and welcome to Mills earnings conference call to discuss the results for the Fourth Quarter 2025. Joining us today are Mr. Sergio Kariya, CEO; and Ms. Renata Vaz, CFO and Investor Relations Officer. Please note that this presentation is being recorded and simultaneously translated. [Operator Instructions] We would like to clarify that any forward-looking statements made during this Conference call regarding Mills business outlook, projections and operational and financial targets constitute beliefs and assumptions of the company's management. Investors should understand that political, macroeconomic factors and other operational factors could impact the future of the company and lead to results that differ materially from the forward-looking statements. To begin the fourth quarter earnings conference call, I will now turn the floor over to Mr. Sergio Kariya.

Good afternoon to all of you. It is a pleasure to be with you again to discuss Mills results for the fourth quarter and full year 2025. Starting with Slide 3, we delivered another year of consistent growth with margin expansion and strong cash generation. We closed the period with net revenue of BRL 1.8 billion, 15.7% increase. Adjusted EBIT reached BRL 941 million with 24% year-over-year, a 3% point margin expansion to 51.2%. This performance mainly reflects scale gains and continuous improvements. Net income totaled BRL 301 million, growing 6% despite higher financial expenses. When we look at cash basis, we grew 21% versus 2024. We remain focused on shareholder value creation. In 2025, we announced a record dividend distribution totaling BRL 255 million of which BRL 150 million will be paid in April. This represents a payout ratio of 85%, equivalent to a dividend yield of around 8% based on the year-end closing price. Another highlight was cash generation. Adjusted operating cash flow reached approximately BRL 786 million with cash conversion of about 87% of EBITDA, historical average. This level of cash generation allowed us to close the year at 1.3x net debt EBITDA, the lowest level in the past 5 quarters. Additionally, in December, we carried out the seventh debenture issuance, reducing both outstanding debt balance and the company's average cost of capital. Let's move to Slide #5, where we continue to reap the benefits of our portfolio diversification and disciplined capital allocation. Logistics continue to gain relevance, while the light machinery remained more competitive. In this segment, we have focused on commercial discipline, cost rationalization and longer-term contracts. In the formwork and shoring unit, we continue to capture demand associated to infrastructure projects with consistent revenue growth and even higher margins. Another important point is the evolution of our contract profile. We ended the quarter with 55% of rental revenue coming from long-term contracts, an increase of 11 percentage points vis-a-vis the fourth quarter '24, enhancing visibility of future revenues. Operationally, we closed the period with 16,000 machines in our fleet and 49,000 tons of formwork and shoring, consolidating Mills as one of the leaders in equipment rental and engineering solutions in Brazil. Looking ahead to 2026, we remain focused on increasing our share of recurring revenues and working in more resilient sectors. Our multiproduct strategy has delivered tangible results, particularly in the greater addressable potential market. With this, I would like to turn the floor over to Renata, our CFO and Head of Investor Relations, who will detail the main financial highlights.

Let's go on to Slide 6. Net revenue in the fourth quarter totaled BRL 493 million, a 14% increase year-over-year once again representing a record quarterly revenue for the company. This performance was mainly driven by the expansion of rental revenue reflecting the evolution of our portfolio and increased penetration across clients and segment. For the full year, revenue grew 17%, totaling BRL 1.8 billion. Excluding the contribution from NEXT Rental acquired in August, our growth would have been 12%. This reflects our strategy of solution diversification, customer proximity and continuous efficiency gains. Regarding COGS, we recorded BRL 142 billion (sic) [ BRL 142 million ] in the quarter, a 9% increase year-on-year, following higher rental activity and increased consumption of parts for fleet mobilization and maintenance. For the year, COGS totaled BRL 510 million, up 13% versus 2024. Operating expenses totaled BRL 102 million in the quarter, BRL 396 million for the year. Both COGS and expenses improved as a percentage of net revenue reflecting ongoing efforts to optimize the organizational structure and operational efficiency. In Slide 7, adjusted EBITDA reached BRL 253 million in the fourth quarter, a 20% increase year-on-year with a margin of 51%. For the full year, EBITDA grew 24%, maintaining a margin level similar to that observed in the quarter. This performance reflects the combination of revenue growth, cost discipline and productivity gains across different business units. At the right, we see the evolution of net income that totaled BRL 79 million in the quarter with a net margin of 16%. The result was mainly impacted by higher financial expenses and increased depreciation, reflecting lead expansion. For the full year net income reached BRL 301 million, a 6% increase vis-a-vis 2024. Excluding nonrecurring effects, adjusted net income would have been BRL 92 million approximately. In Slide 8, the adjusted operating cash flow reached 266 million in the fourth quarter, an 84% increase year-on-year with cash conversion of 111% of EBITDA. This performance mainly reflects improved working capital management, better scheduling of equipment purchase receipts and payments and lower CapEx besides the prepayment of the 7 debenture issuance. For the full year, adjusted operating cash flow reached BRL 786 million, a 20% increase versus 2024, with cash conversion of approximately 87% of EBITDA. CapEx totaled BRL 80 million in the quarter, a 52% reduction year-on-year. For the full year, investments amounted to BRL 675 million, down 32% compared to 2024, reflecting greater discipline in capital allocation and selectivity in originating new contracts. It's important to highlight that BRL 180 million refers to the acquisition of NEXT. For 2026, we continue to evaluate organic and inorganic growth opportunities, always focusing on markets with greater revenue predictability and contracts with adequate profitability. On Slide 9, the reduction of leverage was important. We ended the fourth quarter with gross debt of BRL 1.7 billion following the prepayment of the seventh debenture issuance, reducing debt by BRL 443 million. As a result, we also reduced the company's average cost of debt to CDI at 1.8% per year, extending the average maturity to 4 years. This movement is aligned to our strategy of optimizing capital structure and capturing competitive conditions in the capital markets. Leverage remained at a very comfortable level, closing the quarter at 1.3x net debt to EBITDA well below financial covenants. Another positive point is the debt amortization schedule which was further lengthened. Currently, 95% of the debt has a maturity of over 12 months and there is no principal amortization scheduled for the next 2 years, '26 and '27, leaving the company well positioned to continue executing its growth strategy. Moving to Slide 11. We delivered another strong quarter in the rental unit with net revenue of BRL 415 million, a historical record with a 12% increase year-on-year. Once again driven by growth in heavy equipment and intralogistics, despite a more competitive environment in light equipment. Adjusted EBITDA reached BRL 196 billion (sic) [ BRL 196 million ] in the fourth quarter, a 14% growth year-on-year with a 47% margin, reinforcing the unit's operational strength, the continuous improvement initiatives and the focus on sustainable value creation. Despite a more challenging scenario for the full year, the unit reached BRL 1.5 billion in revenue, a 15% increase vis-a-vis 2024 and BRL 735 million in adjusted EBITDA, up 19%. Finally, on Slide 12, when we look at the formwork and shoring business unit, we delivered another solid quarter, driven mainly by our commercial strategy and the company's pipeline. Growth was supported by both higher rental volumes and price increases. As a result, net revenue totaled BRL 78 million in the quarter, a 23% increase year-on-year. Adjusted EBITDA reached BRL 57 million, 46% increase vis-a-vis the fourth quarter '24, with a 74% margin, a record for the period. Margin expansion was driven not only by higher rental revenue, but also by one-off indemnities received from clients under commercial agreements impacting the unit's performance for the full year. The unit reached BRL 307 million in revenue, a 26% growth vis-a-vis 2024 and adjusted EBITDA with a growth of 47% reaching BRL 206 million. This concludes our presentation for the fourth quarter results. Thank you all for your time.

[Operator Instructions] Our first question come from [ Mr. Mateo Santana ] from Bradesco.

Hello, Kariya and Renata, I have a single question. I would like to speak about the lease of light equipment, which is the present day competitive environment? Are we having new platforms coming in, especially from China? And it seems that this quarter, you had a better result in the platforms now. What is your idea of yield and utilization in the coming quarters? That is my first question.

[ Mateo ], thank you for the question. We don't see significant variations in the margin compared with the beginning of last year. Now throughout the year, in terms of equipment entry into Brazil. This was within what was expected. There is no additional equipment coming in. And all of our work in commercial intelligence, market coverage and finding new niches has positively impacted the company. Of course, the environment continues to be quite competitive, but we see that the company is prepared to face that competition and this can be shown through our results in the fourth quarter. In terms of usage, at the beginning of the year, there's always seasonality. In December, we have the return of light equipment in December and in the first quarter, this tends to increase again. This is within expectation. It is returning to levels pre November and December. And until the coming months, we should have already offset these equipment returns. For the time being, therefore, everything is within estimates and within expectations.

Our next question come from Ms. Luiza Mussi from Safra Bank.

Could you give us more detail on what you call the PCE and which is your expectation for the year in that line item. And which is your mindset in terms of profitability? What we see in formworks and shoring, is this something relevant. And if you can capture better results going forward.

Thank you, Luiza. Good afternoon. Let's begin with that PCE, this was a onetime surgical event this semester. We removed equipment that was in default. When we look at the results of the year, we continue with very good results, 1.8% of net revenue and our portfolio continues to be very sound. This was a onetime effect. To speak about margins going forward. As a company, of course, we have several initiatives for cost reduction, productivity, mobilization of new contracts. We would like to maintain this at a level of 50% as recurring margins for the coming year. To speak about the performance of formwork and shoring, we have a very robust pipeline, especially in the infrastructure. We have closed important contracts. Our backlog is very interesting. We're working with a subway with highways and other projects and we think that in the year 2026 results will remain consistent.

Our next question comes from Mr. Joao Ramiro from XP.

My first question here is about forklifts. This segment has grown significantly in terms of revenue given the ramp-up of contracts that were implemented in the past. And it takes some time for them to be fully implemented. What is it that you expect for this operation during the year, which is a running rate of revenue that you would like to end the year with and if you could also speak about next rental, what is happening to the integration process of this new company. You mentioned cross-selling and upselling opportunities and is everything running according to what you had imagined and which will be the operation of the yellow line throughout 2026.

Joao, thank you for the questions. I'll begin with the forklifts. We have been making strides and growing significantly in that business unit. And I don't think there will be anything different in terms of CapEx vis-a-vis the year 2025. It will be very similar for this year. As you mentioned, between closing mobilization and harvesting, the results of these contracts, there is a certain lead time that is quite long. And so this ramp-up will happen during the year. This is a unit that has less seasonality considered with heavy equipment because of the rainfall. This is a constant unit and we hope to have the same ramp-up for the year 2026. Considering NEXT Rental, we have been working with a consistent integration since the closing. As had been mentioned, this was not a simple PMI, given the way we carried out the acquisition. All of the fronts, especially the more critical fronts, in terms of organization have been concluded. We still have to carry out further steps in terms of integration, but I think, we're advancing consistently and according to what was expected. Now to speak about heavy equipment, very generally as a heavy equipment intralogistics have significant growth. It won't be different for the product line of heavy equipment. We will continue to make investments. There is an impact in the first quarter because of the seasonality of rainfall, but we have been closing a reasonable number of contracts that will be mobilized in the second quarter.

That was very clear. Could you give us more color about that mix of heavy equipment and intralogistics, what are you expecting to capture with that?

The first step, the low-hanging fruits would be in the commercial area. We're bundling the equipment, integrating equipment as if it were a single Mills at least on the commercial front. And this brings about a great deal of opportunities, cross-selling, upselling. Clients that are exclusive from one product that will expand to other products. The more complex part which we're still serving begin to capture refers to cross servicing, how to capture all of the operational gains/operational synergies. This is still under survey, but at the end of this year and the beginning of next year, we should capture more synergies and synergies on the operational front. So first of all, we focus on the commercial front.

Our next question comes from Pedro Tineo from Itau BBA.

We have 2 questions. I have an update on the third life of your assets, you had spoken about that in the past. We have a change of material of some of them. So what has been happening in this field, which has been the information and what you will do with this with 2026. A second point, if we could speak about the tax reform, 2027 is around the corner. What can we think about in terms of credit generation and the scale of assets.

Pedro, I'm going to answer the first part, Renata will answer the rest. Regarding the asset third life, we have had good evolution. We're optimistic on that front. We have been able to convert quite a bit of equipment in terms of electrification, lengthening the use life and the cost of operations, of course, with the use of COGS. This is an active front and throughout 2026, we will be capturing significant reductions on that front. Besides lengthening the life span of the equipment, and we will use all of this knowledge to extrapolate this to other machines and other product lines to continue to do that as a structurally systemic way of operating. Renata will refer to the tax reform.

The company looks very closely at all initiatives, news that come in, in terms of the tax reform. We have an outside consultancy that helps us in decision-making. Now this year, we have focused on system development, and we're trying to see what will change for our company. The tax reform has a greater load on consumption, and we're going to see what happens with the acquisition. We're going to be able to seek out more credit that we do not have at present, and our suppliers will also have more credit, which will be a very positive ticket. So for the time being, we're considering a neutral impact looking at our customers, looking at our suppliers and the impact for the company will be as limited as possible.

[Operator Instructions] Our next question comes from Gabriel Frazao from Bank of America.

We have a question referring to leverage, indebtedness dropping to 1.3x net debt to EBITDA. With that level of leverage and with the integration of NEXT Rental, do you feel comfortable to carry out new acquisitions? If affirmative, which is the equipment segment that you would be focusing on in that case.

Gabriel, I'm going to answer, and then Renata will add to the answer. As an organization with disciplined capital that has always been an important focus. Nothing different from what happened in the fourth quarter. Now given the level of interest rates, despite that cut of 0.25%, we're quite optimistic when it comes to organic CapEx investments and our inorganic front is always very active. We're looking out for opportunities to grow not only organically, but also inorganically. That leverage allows the company comfort to make the most of opportunities in Brazil, where we have a complex scenario for interest rates. Now this is work that we have been carrying out during the last few years. It doesn't stop now. We're always looking at opportunities to reduce the cost of debt and to lengthen the debt. So that we can capture as many opportunities for organic and inorganic CapEx as well. This is our daily work at the company in truth.

[Operator Instructions] Our next question comes from Mrs. Luiza Mussi from Safra Bank.

One more question at our end. I would like to gain a better understanding on your distribution of CapEx this year between units. When we look at the platform and Kariya mentioned this in the first question from the call. How much can we imagine the CapEx being used for an expansion of fleet or perhaps changing equipment that will help you with your maintenance COGS.

Luiza, let me begin by answering the part of CapEx for light equipment. We had halted investments in 2025 to look in-house and to work on our efficiency. We're back to investing in 2026. And part of the CapEx that we expect in 2026 for AWG light equipment, 40% would be for fleet renovation and 50% to grow again in that unit. Because of our market intelligence, there are some products that would allow us the opportunity to grow. Now we're going to carry out investments that are very similar for formwork and scoring -- shoring, I'm sorry. We're going to repeat this, working with more opportunistic growth that will release equipment that is in a situation of standstill. We're going to equip this equipment to work on infrastructure projects. This is part of our pipeline and backlog as well. And the ratio would be 40%-60%, 60% for heavy equipment, 40% for intralogistics, for forklifts. This is the CapEx that we expect for the year. In CapEx, as I mentioned, part is for fleet renovation, it's structural and the larger part earmarked for growth. And to go back to the question made by Pedro, we want to maintain the leverage we have to have options to carry out additional investments, organic investments, but also makes the most of inorganic opportunities that we did in 2025. Last year, when we began, our CapEx was lower, we unharnessed the CapEx for heavier equipment and intralogistics and then we carried out an acquisition. And in 2026, our expectations are very similar. We also have a strong generation of EBITDA to cash flow, and we can work with that organic CapEx, look at M&A opportunities and still with that, maintain leverage at comfortable levels. That was very clear.

The question-and-answer session ends here. We would like to return the floor to Sergio Kariya for the closing remarks.

Thank you all for your attendance in our earnings call for the fourth quarter and full year 2025. Should you have additional questions, our IR team is at your entire disposal.

The Mills earnings conference call ends here. If you have questions, please send them to the IR team through [email protected] (sic) [ [email protected] ]. We would like to thank all of you for your participation. Have a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]