Movida Participações S.A. (MOVI3) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Movida's 4Q '19 Results Conference Call. Today with us, we have Renato Franklin, CEO; and Edmar Neto, CFO and Investor Relations Officer. The amounts in this presentation, unless otherwise stated, are in millions of reais, adjusted for IFRS 16 as of the first quarter of 2019. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Movida management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Movida and could cause results materially different from those expressed in such forward-looking statements. Now I'll turn the conference over to Mr. Renato Franklin, CEO. Mr. Franklin, you may begin.

Thank you. Good afternoon, everyone, and welcome to the conference call of Movida's results for the fourth quarter '19. We are glad to be here, and thanks for your time to celebrate and present the results of 2019. 2019 was a transformational year for Movida. We are now a much more conscious and a mature company. We evolved a lot in terms of procedures. And now if you look at our base and our numbers and our statements, you'll see that we are ready for a new growth cycle with an even more profitable and sustainable manner. And at this moment, of course, we are seeing high volatility in the stock market and these things. We would like to highlight here that Movida has been in -- at the forefront of the movement that is changing the mobility, mainly in Brazil, of course. And this movement, in terms of the new mobility cars as a service, it has come to stay. Then regardless of this short-term volatility, we would like to reinforce to you that it's a time to look at the assets that have strong fundamentals. And our history and -- as a public company and the results that we have been presenting in the last 9, 10 quarters can prove the solid fundamentals that we see for this market and the good moment that we are seeing. Of course, you can see some short-term volatility. But for the medium and long term, very good fundamentals that make us very comfortable with the business plan that we have to deliver in 2020, and the medium- and long-term business plans that we have here. Saying that, let's go to our highlights. Starting with the net income. Again, we presented a new record in net income, BRL 228 million. It's an increase of 43% against last year. And looking at the fourth quarter, you can see that the evolution was even higher, 63% above the same quarter last year, that's BRL 84 million. It's important to say here that we have been focused on individuals. And of course, it's high season, and Movida is very well prepared to capture the highest profitability possible. Of course, we have too many things to do, yes, but evolving profitability every quarter and delivering better margins. If you look at our revenues, our revenues totaled BRL 4 billion. It's 43% against last year, that's the same increase in terms of revenue. Looking at the total revenue and looking at the quarter, it's 34% increase. In terms of EBITDA margin, remember that our focus here is selective growth focusing on profitability, then the company is growing. Yes, we have a huge growth, an important growth base, but we have been increasing more the EBITDA levels than the net income, increasing margins. EBITDA increased 61%. And comparing just the last quarter, 89% against the 4Q '18, totaling BRL 259 million in fourth quarter. When you look at value generation, again, a new record here. The spread between ROIC, R-O-I-C, and our cost of debt is 5.5 percentage points in 2019. Then again, a new improvement, opening more this spread and generating more value to our stakeholders. I'd like to highlight here 2 other main important achievements. The first one, you know that Movida has been focusing a lot since the beginning in terms of innovation and sustainability. For example, we have the Carbon Free program since our foundation in 2006, even before JSL acquisition. After JSL acquisition at the end of 2013, of course, we have been focusing even more in our purpose and sustainability. And because of these actions, you can see that last year, we -- Movida was included in the ISE, the Corporate Sustainability Index of B3 here in Brazil, of our stock exchange, and awarded with an important international certification. Movida now is considered a B Corporation. Movida is the second listed company in Brazil to receive this award and the first car rental company listed -- a publicly held car rental company in the world to be certified with this stamp of B Corporation. That is a -- it's a mark for ourselves that shows that we are in the right direction, and we are ahead of the industry, pushing the trends in this industry and for the companies in Brazil, helping the companies to improve the world that we live, and of course, doing all the things in terms of not only environmental and social, which are very important, but still with governance, with risk management, with transparency and consistency to ensure that we have sustainability in our profitability, in the net income and all the results that we have been generating during the last quarters. And looking at the future, we are more comfortable to keep this pace of evolution for the short and medium future. Let's go to Page 3 to talk about our growth with value generation. The main message here is not only the fleet growth. Of course, it's a good growth, 18% against last year. And comparing to the IPO, remember that when we did the IPO, the numbers was of the third quarter '16 and 55,000 cars, we aimed to achieve twice the size that we had in that moment between 3 and 5 years. Three years later, twice the size. Okay. Very good. But looking at our revenue, the revenue is growing more than the fleet. The fleet grew 71%, and the revenues were 104% compared to 2016. If you look with last year, it's 26% of revenue growth compared to 18%. And we are improving efficiency, improving gains and capturing more money. Just an additional point here, if you look at our statements, you'll see [ BRL 165 million ] with cars that was in process of implementation in the end of '19. These cars were bought in the end of '19 and were implemented. Just the beginning of 2020, still high season, then it's a contracted growth for the first quarter. Let's move on to Page 4 to start to talk about each business unit. Before talking about Rent-a-Car, just a point here, Edmar will give more details later about the accounting change that we made this quarter, then we have some geography change. And he will explain with more details the change that we have, does not impact the bottom line, but just some margins are impacted here, okay? Then see here -- seeing that here in the Page 4, we compare the numbers at the same base. Looking at revenue, almost 20% of growth. Daily rentals, the same growth. But look at this. Even with the lower interest rates that we are facing now, we have been able to increase the revenue per car by 7.4%. This was possible because we reached a record in terms of occupancy rate, 79%, and we increased our daily rental to increasing prices in each channel. Because of that, that we have been delivering these good margins in Rent-a-Car, improving margins and a good profitability. If you look at the costs, we still see some decrease. Annual basis is very comparable, then 8% lower cost per car when you compare '19 with '18. If you look at 4Q '19, we have an impact -- we have a spot PIS/COFINS credit here, that is not for -- everything for the fourth quarter. We have BRL 10 million -- close to BRL 10 million that is for the full year, and all the credit was captured in the fourth quarter. Then you look at the year, everything is okay, normalized. But looking at the quarter, we still have some effect here because it was accounted just in the fourth quarter, okay? But good results in Rent-a-Car, good fundamentals, solid fundamentals. We believe that now with the result that we achieved in the other business unit, the growth cycle here will be even better. Moving on to the next page, Page 5, to talk about Fleet Management. Fleet Management, still with solid fundamentals, huge growth, 39% of growth in terms of revenue. And here, of course, interest rates are even more important in terms of pricing. But even with that, we have been able, because we are being -- have been very selective, we have been selecting just high profitable contracts, because of that, we were able to increase revenue per car, net revenue per car by 3%. In terms of costs, we still see some improvements. In terms of cost reduction, the same lift in the tax that we made for Rent-a-Car are being rolled out to Fleet Management, and we can improve a little bit, but it's almost flattish when we compare it year by year. The major gain here will -- came from scale. Then moving on to Page 6 to talk about Used Cars Sales. Used Cars Sales, for sure, is one of the highlights of the quarter and of the year. Remember that we grew 64% of our total volume when you look at Used Cars Sales here. Looking at the quarter, 43% of increase. And the main point, we have been able to sell more cars on retail. Then the price is getting better, average ticket is getting better. And with that, the gross margin, of course, we are diluting more than G&A. Now it's over -- under 6%, and the gross margin has been improving, reaching breakeven in terms of EBITDA. It's a new level for Used Cars Sales, and that starts and enables -- enable us to start a new growth cycle. An important point here in Seminovos is that we have a huge market to sell cars, and we have huge demand, too. We just did not sell more cars in the fourth quarter because of the high demand that we received within Rent-a-Car, and we decided to de-fleet less cars. And because of that, we do not have too many cars to sell to our customers to guarantee, to ensure the service level in Rent-a-Car stores. Now I will hand over the presentation to our CFO, Edmar, please go ahead.

Thank you, Renato. Good afternoon, everyone. I will invite you to move to Page 7 of the presentation where we highlight the main changes in our accounting policies. We put together 2 different groups. The first one is a group that does not affect the result. It's just geography, so it does affect the margins. And the second one being the result itself. For item A, I refer to fines, tickets, reimbursement from crashes, fuel and fees. It was a cost reducer, now it goes up to the revenue. It does not change bottom line, but it changes EBITDA margin. Total of BRL 150 million. For the full year being roughly BRL 110 million for the RAC and BRL 40 million for the Fleet Management business. Second is credit card fees, which were considered financial expenses beforehand. Now we have moved them up to operational expenses. They do affect EBITDA. So it changes EBITDA and changes EBITDA margins as well. The change was made early fourth quarter, and the move was BRL 12 million. Last, we have the discount rate of IFRS 16. Just remembering, this is the year of implementation of the new ruling. And CVM, the local SEC, put out an instruction late December 2019 asking all the companies to be sure that we would be using nominal rate, which was not our case here. So we needed to readjust all the contracts. It had an impact of BRL 6 million in our financial expenses, in the overall considered. As Renato mentioned, all these changes, they were made during the fourth quarter, and they have an impact for full year. So maybe fourth quarter had a little bit of, let's say, imbalance at this point, but those are recurring expenses that will affect 2020, either for the good or the bad. What we did is not only in the press release, but in this presentation as well as -- after the end of the presentation, we put together a table with a summary of these changes walking through from stage 1 to stage 3 so you can understand what happened with Movida. Just to mention that the table shows that if it were not for the IFRS 16, we would deliver a BRL 240 million net income for the year, which would be a 50% increase when compared to the previous 2018, okay? Now I will invite to move to Page 8. We're talking about the results for the quarter, and the scale means a lot for us. And therefore, there was a lot of operational evolution for all of the business lines. So RAC came with BRL 169 million with IFRS for EBITDA. Fleet Management, BRL 84 million. And Seminovos, the highlight of the quarter, came at BRL 6 million positive. This is the first time we ever report a positive margin EBITDA in this business unit. For the EBIT -- and the EBIT has an impact of the higher depreciation we are showing in this quarter. EBIT for EBITDA -- came at BRL 112 million, BRL 47 million for Fleet Management and nearly breakeven for Seminovos, minus 1. Moving to the next page, that's the full year results. EBITDA, BRL 478 million for the RAC, BRL 292 million for Fleet, and BRL 27 million for Seminovos. Used Cars Sales totaled BRL 743 million, that's a massive improvement against the previous year. On the EBIT, again, it's below in the slide, still healthy margins, almost 29% for RAC, BRL 335 million; almost 40% for the fleet, BRL 183 million; and therefore, the Used Cars Sales, minus 2.3%, an improvement of 3 percentage points 1 year for -- comparing to the other. And again, that's a result of the margin improvement, in terms of gross margin as well as the new volume that brings a lot of dilution. Page 10, I will go over consolidated EBITDA. I have anticipated BRL 743 million against BRL 463 million. That's a 30% increase from 1 year to the other. And we show improvements in all the business lines, a record of 46% percent for the EBITDA margin for the sale. Next page, we touch -- and that's Page 11. We touched on unitary basis, it's exactly what Renato mentioned along his presentation, that is the efficiency gains that we are posting to the company. So this is the EBIT on a monthly basis for total -- comparing to total fleet. And that's important because it does take into account all the cars that we have in the company no matter where the car is. It could be -- either be implemented or be at Seminovos stores. So it's all of the -- our assets. Again, a 30% increase in terms of EBITDA from 1 year to the other in a unitary base. A very strong result, indeed. Page 12, we'll take a little bit more time in terms of depreciation. And we put together here 4 charts, 2 for RAC and 2 for Fleet Management. The message is we have increased depreciation per car, being conservative in the fourth quarter for many different reasons. I will quote a few. The first one being nominal terms. The price of the car that we are purchasing are higher than 1 year ago. That's a function of inflation as well as of the fleet mix. We are buying more SUVs and premium cars than before, and they have higher value, and we are starting to sell them. And at this point, we are maybe anticipating a higher depreciation or a lower secondary value when we touch the market. The lower interest rates in Brazil also affect the market because it does make the brand-new cars more attractive. We do understand that also the growth on the monthly rental product and the behavior change that favor on the RAC may affect Seminovos along the way. And absolutely, the new volume of the cars that rental car companies need to sell in this, let's say, 1.5 years, 2.5 years of age, indeed brings an additional pressure in the marketplace. We're trying, let's say, to be -- to anticipate and to be conservative here. So we put together what happened during the quarter, but I will focus on the full year number, which we think reflects more of the new reality. So for a full year, on the RAC, the number that we are showing here is close to BRL 1,700 per year per car on the RAC, and for the fleet is BRL 3,600. So again, we have been very proactive in terms of the depreciation, even before coronavirus, and Renato will go over that in a while. But the year, we're trying to be conservative and to be prepared to any, let's say, more challenging scenario. The next page, Page 13, it's consolidated EBIT. Again, I mentioned BRL 468 million against BRL 361 million from the previous year. That's a 29% EBIT margin for services and a 12% for full revenue. Again, very important levels for us. On the quarter, it was, let's say, a stellar quarter for us. Margins beyond 34% in terms of services and beyond 15% in terms of total revenue of the car. If you move to the next page, you see the exact same rationale but now over EBIT. The EBIT on a unitary basis grew 5%. Again, even with the higher depreciation, we are showing real gains in terms of the numbers of the company besides the new size of the company. This is, again, as I mentioned, in unitary basis. Please move to Page 15, and this is where we touch on cash flow and how the CapEx has behaved as for 2019. So cash before growth was BRL 580 billion. That's an increase of 288%. This is primarily a function of the new operational level of the company, combined with the fact that we're selling more cars at the Seminovos unit. So this is very important because you're turning around the fleet, let's say, in a more efficient manner. This is very important for the next stage, which is expansion. Below -- the chart below brings the net CapEx for full year, that's BRL 1.4 billion. And again, it compares with just over BRL 1 billion in the previous year, roughly a 40% increase. And last night, we filed our board of meetings resolution, allowing us to start the year with BRL 1.3 billion of net CapEx for 2020, showing that the company is very confident on the outlook and on the fundamentals of this market, in spite of the, let's say, short-term volatility that we're seeing at this point. Page 16, we talk about cash and debt. And what is important here is to highlight, let's say, the balance sheet structure that we put together along the last 3 years that allow us to come into, let's say, again, a more volatile environment with very strong fundamentals. So we ended the year with BRL 1 billion in cash. This is public. We are under a transaction for a local debenture of at least BRL 600 million, and we ended the year with a leverage net debt over EBITDA measure for the covenant at 2.4. We are, let's say, again, very strong in terms of the fundamentals, the covenant that we have over the local debt is 3.5. So even assuming growth, the way we have been doing or delivering, we still would be at a 2-point whatever level, again, showing that this company has been prepared for different scenarios here in Brazil. Again, very important in terms of how to deal with the reality that we have to face nowadays. Having said that, I will turn the floor back to Renato. And Renato, please.

Thank you, Edmar. Let's move on to Slide 17. This is a chart that we are using to present every year, showing the bridge between the last year net income and the actual year net income, then between '18 and '19 now. There are 2 main difference here that I would like to highlight. The first one is that we used to show the contribution of Rent-a-Car and Fleet Management for the results of the company. Then remember that although we do not have a business unit for selling cars, it's part of the business just to renew our fleet. We have a contribution here of BRL 23 million this year that came from Used Cars Sales from Seminovos. Then it's very important to gather the 3 business units, improved BRL 108 million in terms of EBIT. That even with a higher depreciation, it's BRL 108 million of marginal contribution for our net income. But better than that is the left side of the page. Why we are here highlighting the quarter? Because at the same way that Edmar just highlighted the improvements in our balance sheet, today, we have a company that's much more strong in terms of -- much stronger in terms of balance sheet, in terms of liquidity, in terms of all the financial KPIs. Looking at the profitability, it's still very different. When you look at the evolution of net income, it's 42% when you compare the full year. But looking at the fourth quarter, it's 62%. And even getting the part of the credits of PIS/COFINS that is not for the quarter, it will be higher than 50% of improvement. Then we are getting into 2020 in a much better way compared when we get into 2019. That's why we are confident with this year and excited to deliver much better results on 2020. Moving on to Page 18. On Page 18, we show the -- our profitability comparing the spread of ROIC and cost of debt. Again, we highlighted that in the initial representation, 5.5 percentage points. We have been delivering improvements in terms of ROIC, and of course, reducing spread over the CDI and of -- and the CDI going down is helping us, too, then reducing the cost of debt. If you look ahead -- looking ahead, we still see some improvement in terms of cost of debt. And of course, in terms of ROIC, there is room to keep improving efficiency, profitability, and of course, gaining scale, improving this to a higher level, improving the spread that we deliver here, too. In terms of ROE, even with the follow-on that we made last year, we improved the ROE for the fourth quarter. And now it's the trend to keep improving quarter-by-quarter the ROE, getting to a different level in the end of 2020. Then at the same way that you saw a different picture in the end of '19 comparing to 2018, we will expect to deliver a much better picture in the end of 2020, consolidating this evolution, the transformation that the company just faced in '19. And now it's time to capture the fruits and start a new growth cycle. Moving on to Page 19 to do the closing remarks. We highlighted here the 3 important points for us that made us very excited to be here in this moment with a different level of company. First, in terms of profitability, the size of the company evolved a lot. And our profitability, our margins now are benchmark of the market of the -- our industry for Rent-a-Car and Fleet Management, and Used Cars Sales already getting very close to the orders and already above the breakeven, which is our target, to keep Used Cars Sales above breakeven and keep improving Rent-a-Car and Fleet Management. We are doing that, focusing a lot on customer experience. Since the beginning, it's our focus, and we are more exposed to individuals. This helps us in high seasons and holidays and to work with artificial intelligence, with dynamic pricing, helping us to capture additional price to rent the same kind of car in Brazil. That's why we have been delivering better rates in terms of pricing and in terms of margins in Rent-a-Car. And in terms of sustainability, we already said that it came -- since the beginning of Movida, but now we are in a different level with a different sustainability agenda. If you saw, we believe we presented yesterday, together with these annual results, the sustainability report with lots of KPIs, a huge transparency and some medium- and long-term commitment that we have been making to ensure the new level of growth and profitability of the company, but with our ESG KPIs evolving too and in a different level in terms of contribution to a better plan and a better society. Just to finish here, it's important to say, we have been seeing the coronavirus in the whole world, then we have this COVID-19 and the impact in the stock market. We would like to highlight here that in Rent-a-Car here in Brazil and in Movida, we have seen no impact up to now. That January and February were a very good month, above our expectations. Looking at March, up to now, no impact from this virus or anything related to that. We are still seeing a huge demand, strong fundamentals. Remember that the fundamentals of this industry are very strong. Then we have already a demand that is not being serviced at ride-hailing with the Uber apps and other apps here, the drivers that are renting from other guys, small companies paying high rates that we can penetrate. We have the monthly car for individuals with a huge demand, growing a lot, and urban mobility is growing a lot. And of course, maybe we are seeing people preferring to travel by car instead of getting an airplane or other auto because it's more -- it's safer, I don't know, but we are seeing a huge demand, no impact, and we are comfortable with our business plan. But we know that in the short future, we can see some impact in Brazil. Because of that, we created a crisis committee here, that it's monitoring everything. We did some prevention actions just to mitigate any risks. And because of our balance sheet and the results that we have now, we are -- we can say that we are prepared for any bad scenario. Although we do not expect it to happen, if it happens and if it does affect our demand, it will be just a matter of the size of the growth of the company. And our commitment with yourselves, with the Board here is to deliver profitability, to increase net income and to, of course, grow at some level the company. But if we need to decide to grow less and to pass through this crisis and to deliver the best profitability in the end of 2020, it will be done and we are comfortable with this scenario. Both Rent-a-Car, Fleet Management and Used Cars Sales are with strong demands, and we are not seeing any impact up to now, I reinforce here. But just to share with you that we have a plan and we are prepared if you see a worst scenario in the short future. And we will communicate you as soon as we see any significant impact. Saying that, again, our base scenario is very positive. We are excited with the year, and we would like to thank all of you for the support and our people that's working hard, delivering things and executing in a better manner every quarter, delivering better results every quarter. I would like now to open for any questions or any details that you would like us to give you some color or more information. Then, thank you very much again.

[Operator Instructions]

Okay. We have a question at the web here. Which impacts are we considering with COVID-19 pandemia? Again, we just mentioned that in the end of our closing remarks. We are not foreseeing at our base scenario an impact from this virus. But if we see some impact, it will impact just the growth. We can see some impact, for example, in terms of the supply chain of the OEMs because any raw materials maybe will not reach Brazil and stop some production or anything like that, then we will need to slow down the growth and keep performing. Of course, if we see a huge scenario of crisis and nobody in the streets and the things like we've seen in Italy or in Wuhan, China, we will keep the focus on monthly rentals, ride-hailing and these fixed revenue services and maybe reduce the size of the [ company ], size of the growth, doing that. But we do not expect to see that in a significant way, we are comfortable with the base scenario. And if we see something different, we will inform you all. Thank you very much.

[Operator Instructions]

This is Edmar here. We have another question over the web. And the question is, would you be -- or could you be more specific about the first 2 months of the year? Give us a color in terms of how the business lines are doing up to now.

Okay. We have been seeing strong fundamentals in this month, and that both months are coming above our expectations in Rent-a-Car and in Fleet Management. We still see huge growth in our business lines, and we talk about monthly rental for individuals, daily rental for individuals. Ride-hailing is still with a strong demand. And even the corporate trips, they are growing. We do not see any impact of coronavirus or anything up to now. Then it's a good year with strong demand that make us confident to deliver a good year in 2020. There is another question here about our relationship with Avis. Any long-term revenue potential? Will Movida continue to move business toward fleet rental segment? Then 2 questions here. First, regarding Avis relationship, we have been discussing an agreement, and we are in the final steps of this discussion. Then, we do not have anything to disclose. But we foresee to have a strong partnership with them, improving inbound and outbound revenues for Movida here. Regarding the Fleet Management, Fleet Management is still with a very low penetration. More companies are changing for outsourcing their fleets. And we still -- we are still focused on medium and small companies where we see better returns and a lower risk in terms of payment debts or even margins and pricing. Of course, there are some car models that Movida has a better offer in the OEMs. And in these cars, we usually are more competitive with high returns. And these are the cars and the selective growth that we have been pursuing at Fleet Management. We aim to achieve a good growth base in Fleet Management this year again. Thank you.

[Operator Instructions] This concludes the question-and-answer session. At this time, I would like to turn over the call back to the management of the company for closing remarks.

Thank you. Again, I'd like to thank you all for participating in this call and for supporting ourselves during this history. Now we have been delivering, in the last 10 quarters, improvements in all business lines. And you can see a decent level in our Used Cars Sales, above the breakeven, allowing us to start a new growth cycle. Again, we have today, a much stronger balance sheet with much better profitability levels that allow us to strength our CapEx and our growth, improving profitability and still focusing on efficiency and always focus on delivering the best service level possible measured by our NPS. Thank you all. We are excited with 2020, and have a nice day. Thank you.

Thank you. This does conclude today's presentation. You may disconnect your line at this time. Have a nice day.