Neogrid Participações S.A. (NGRD3) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Neogrid's Second Quarter 2025 Earnings Conference Call. My name is Augusto Vilela. I am the Investor Relations, CFO. And with me, we have Nicolas Simone, our CEO. And this session is being recorded. [Operator Instructions] Before we begin, we would like to remind you that any forward-looking statements reflect the management's expectations and are subject to risks and uncertainties. After the highlights, we will open the question-and-answer session and the recording of the slides will be available on Neogrid's IR website. Now I would like to give the floor to Nicolas.

Thank you, Augusto. Good morning, everyone. It's a pleasure to speak with you as the CEO of Neogrid. We completed the management transition on June 30, already fully integrated. Both Augusto and I have been with the company since 2024. We have a strong leadership team with whom we quickly established an execution agenda based on agility and pragmatism, focus on efficiency, operational excellence and innovation. Given my profile, I believe it's extremely to keep our finger on the pulse that is closely to monitoring operations and always act proactively and follow focusing on efficiency, operational efficiency and innovation. Our priorities are clear. First, we want to be client-centered. We want constant presence with our customers regardless of the channel to accelerate and demonstrate value delivery. Second, pursuing sustainable growth, doing the basics well, innovating and growing side-by-side with our customers. Operational excellence is our main goal, our pray of every day. Third, generating recurring cash flow, combining sustainable growth with efficiency cost and investment management, ensuring long-term operational balance and generating shareholder value. Fourth, adopting an AI-first approach. We are already reaping the benefits of AI adoption, both internally and in customer value. And we want to accelerate this front. So when we think about artificial intelligence, we want to have AI first inside and outside to offer value. And finally, and perhaps most importantly, we want to increase and integrate our ecosystem, creating an integrated and seamless journey for our customers. When we consider Neogrid's entire combined product offering, we have a significant competitive advantage as one because nobody offers a broad range of solutions focused on supply chains, consumption and distribution. So to maximize this value, we need to accelerate the construction of this integrated journey and truly become the one-stop shop for our market. So integrating this journey, this ecosystem, bring this journey integrated together to our customers, we believe, is a big differential of Neogrid. Now going to Slide 5. When we look at the pillars, we have metrics reporting across the company with the goal of fostering a greater agility, adaptability and focus and agility is the capacity to adapt to the reality and the changes of the market and also to the needs of our clients, focusing on what we really need. So this is for us at Neogrid. Now all our business units in which our managers that are part of our high leadership. The CPTO position I held was split between Helder Mendes, our CPO; and Diogo Ribeiro de Souza, our CTO. In engineering and product, we are also looking at innovation, the new lab to ensure that we are always ahead of the market and connected to new technologies and approaches. So the integration, we want to apply work methodologies that are top at Neogrid. So this business also encompasses partnerships. So to find commercial synergies between the solutions. Two, we also strengthen our international operations, relocating internal leadership to resume growth outside of Brazil and diversity in our revenue sources geographically. As I will discuss in the next slide. Note that in the organizational chart that we find in the slide, the main products are distributed among business units with NIA, our proprietary artificial intelligence, serving as a link to integrate the products and increase our efficiency. So this shows that we will have more and more an integrated system and NIA has our main role in that. Here, I would like to take a moment to demonstrate a clear example of the benefits of applying AI to our business. At Neogrid, we are obsessed with data quality. By using artificial intelligence, we are achieving even greater and more significant improvements in our data quality indicators. At the same time, we have been able to optimize work that previously required significant manual effort from our internal teams. In some cases, these teams were reduced by up to 60% with summarizing with the implementation of artificial intelligence, we believe that we will reach efficiencies above 60%, which makes us very happy about that because with that, we are literally going forward in this journey of doing more with less. Now going to the next slide and as part of the changes that we made in the structures, the business unit started to concentrate all the management of the relationship with customers from the first contact to post sale. This is also focused pretty much in the concept of being client-centric. So we are integrating the business unit cultures from end to end. And this is our concept to deliver, to sell, deliver because it's no use only selling, we need to deliver with agility [indiscernible] our clients. The sales team and customer success before separated all the distributions in the business unit. Now each business unit responds integrally for revenues, costs and margins, which creates more accountability and brings the teams closer together and accelerate the answers to their needs. So in summary, what we want is to be more agile, quicker to our customers. We reinforce the importance of our teams of customer success that give us this feeling of value delivery and this perception that our products are really making a difference, and they act as a representative of Neogrid in the customers. So the team of customer success represents Neogrid clearly in a pragmatic way. So these points are core to feed the internal systems and make the activities available. We want to be a step ahead with our customers. Now going to the next slide. In very few weeks, we promoted strategic prioritizations. We launched the [indiscernible] to integrate more and more our systems and offer it to our customers an integrated solution. So we increased our capacity to generate value, and we went deeper into the objectives of Neogrid as an orchestrator of supply chain. We are connected to offering our customers an experience that has less frictions. This objective is much more feasible now, and it does not require any other investment, but our capacity to deliver with our technological evolution. So we believe we have more resources and more capacity to speed up this process. Due to the maturity of the operations that we have acquired over the past years, we renegotiated anticipating the channels of Arker and Predify. With that, we accelerated the materialization of synergies and solutions. Another relevant change in terms of strategy that we're going -- that we're starting to adopt is the expansion of the client profiles that we are looking for. We understood that our portfolio contains products that serve very well different markets other than CPG in Brazil. So in Brazil, we have an opportunity to increase our market and look for clients in sectors like pharma and construction among others. So we are prepared to expand our approach. In this moment, we are recovering our commercial focus with the international market, especially in the United States and Europe. In addition to the changes in leadership, we have reorganized our culture to ensure the best experience for our international clients and also our customers in Brazil. Like I've mentioned before, in addition to growth, we consider this strategy very important to diversify our source -- revenue sources geographically, diminishing the risk in our top line. The most difficult thing in an international expansion is to have cases for different markets, and we do have, and that makes it very easy for us when we think about the expansion and about improving the level of services that we provide in this market. We also have products that are ready to be commercialized abroad, which means that we have all the conditions to pursue these results that have a potential to increase our margins since we have capacity to work with this client. So our -- because of the exchange rate, our costs are extremely competitive when we talk about the foreign market. Going to the next slide, our MRR has been kept stable compared to June 2024 and March this year. The small variation happens in some segments that were not prioritized at first and also in operations that are concerning operations abroad. And like I said, because the operations abroad were not -- will not be prioritized, we forecast the renewal of some contracts in this market in the value of close to BRL 1 million. Clearly different from the strategy that we had before, we will have bigger impact now. In addition to aligning expectations, we are including this information in our earnings release but we want to mitigate the effects in the short term and compensate this revenue, both with new customers and the expansion in our whole portfolio. In order to do that, in addition to all the initiatives that I have approached here, we are reinforcing a winning commercial culture, revising goals and promoting incentives to reach revenues in a sustainable way. So we already see some positive results in our pipeline of sales in June. What brings us the confidence that we are in the right -- on the right track. With that, I finish this first part of the presentation, and I give the floor to Augusto, so he can continue as of now.

Thank you, Nicolas. Continuing our presentation, let's evaluate our net revenue that Q3 2025 was BRL 68.80 million, which represents a growth of 1.2% compared to Q2 2024 and 1.6% compared to the first quarter of the prior year. This is due to the recurring revenues that represent 98% of the revenues and compensated the setup revenues in this period. This is pretty much in line with the evolution of MRR that Nicolas mentioned in the previous slide. So now following to the next slide, where we have our compound revenues. We see that the amount coming from international operations represented in the 6 months of this year, 10% of total revenues, a positive evaluation of 0.5 percentage points compared to the prior semester. And this happened because the exchange rate was positive at 1.2% in this period and 27.6% in the accumulated view. On your right-hand side, you have the chart of commercial intelligence, which represented 44% and 35% of the total revenues in the first semester. And here, we have the highlights for the units of execution and retail that expanded its participation and the supply chain unit that grew 1 percentage point. Going to the next slide, Slide 12, we present the opening of gross margins per business unit, showing the efficiency of each kind of operations. Overall, the gross margin of Neogrid reached 1.5% in the first quarter of 2025, a reduction of 2.2 percentage points compared to '24, which is explained by the cost of personnel that were increased compared to the prior year. And a highlight here for the supply chain unit that had the best performance among all the business units. And with this consolidated, we will present more efficiency and more opportunities of expansion. Now going to Slide 13. One of our main priorities is to look for operational cash in a recurring way. That is why we're controlling our expenses and ensuring better operations. So when we look at that, we see that our revenues were dropped from 59.9% to 56.9% from Q2 '25 compared to Q3 '24. And when we look at the expenses that we capitalize, it's even more evident because they dropped from 61.1% to 63.1% in Q2 2025. The main effect -- the main drivers of this change were research and development and expenses with sales. So this is due to the reduction of expenses of costs with suppliers and also due to the optimization of our summit that I'm going to talk a little bit more about in detail further on. Now going to Slide 14. We present the recovery of our EBITDA, so it went from negative margins to a positive result of BRL 2.581 million and this is due to the efficiency of operational expenses and the adjustment of approximately BRL 1 million regarding extraordinary expenses with restructuring, both labor costs and the efforts that we are making for efficiency gains. So in the semester, the variation of the adjusted EBITDA regarding the first 6 months of 2024 is connected to the reduction of investment in the strategic plan that in the first quarter of 2024 hasn't been executed yet. Now going to Slide 15, I would like to highlight that in the 6 months of 2025, we generated a cash flow of BRL 5 million. And that was equal to the free cash flow. So on the right-hand side chart, we see that as of June this year, Neogrid had BRL 139 million in cash, free cash flow of BRL 106 million, discounting our debt and obligations. Now on Slide 16, I would like to present our main initiatives, efficiency initiatives to search for recurring cash generation. So we are executing opportunities to reduce expenses in several fronts like consulting trips and negotiating contracts and suppliers as a whole. We are optimizing the expenses with -- in technology with structuring actions and also we are renegotiating contracts with the acquired companies will also bring important gains in synergy in the next months. And finally, I highlight on the left side of the slide, our summit that was -- had optimized cost this year and that we have a much more efficient format because it represented very high costs for the company in the previous years. So it is much more of an approach that is on the return on investment. And here regarding the use of intelligence -- artificial intelligence. To diminish manual work, we will have a gradual reduction in the number of collaborators. See that we closed the month of June with 940 employees, which is a reduction of 12% with regard to the peak of the number of September 2024. And bringing all the initiatives together, we mapped a lot of gains around BRL 2.5 million in reduction of costs monthly. And this will contribute to our operational balance in the long range. Now going to the next slide, I would like to communicate the closing of the buyout program of the company that was valid through July 2025. In our last earnings call, we did not conducted any buyouts. So we concluded the program. So we had already bought 321,000 stock options with an investment of BRL 8.6 million, which is an equivalent of an investment of BRL 26.73 million, right? So when we closed this quarter, the company had 2.3% of the total stock options. And with that, we conclude the presentation today, and now we're available to answer questions that you might have, okay? So let's go on and answer the questions.

Thank you, Nicolas and Augusto for the presentation. With that, we will start the Q&A session. [Operator Instructions] We have 2 complementary questions from Gustavo Farias from UBS [indiscernible].

How are you organizing yourselves to accelerate new revenues globally and in addition to CPG. And we've seen over the past 2 years, a transition program through a consultative analysis comparing the company between Brazil and abroad. So what has made the company targeting the foreign market after some reductions in international abroad?

Well, thank you, Gustavo, for the question. When we talk about foreign operations and ECP, now mainly talking about foreign operations, the most difficult thing in an internationalization of the company is to build cases in different markets and in case Neogrid has several and very relevant over the years. So several of our products are ready to be commercialized abroad with market fit without the need of investments of relevant investments. So this is another critical point. We have structure and capacity to address with excellent the clients here in Brazil without compromising them to approach an international approach. So the work that we've been doing internationally, we very competitive serving costs. So when we look at that, we believe that we have a high potential to expand our gross margin in the company. So with only 1 month going back to the international operations, we see -- we saw our pipeline grow significantly. So it shows that there is a demand and also expanding in operations both in Latin America, United States and Europe. And our structure already supports that and is already prepared to grow and has a return potential. So we want to do more with less. So that does not mean that for the company, this is going to take large investments. So there's no reason not to do that. So we don't see why limit the market, grid market to CPG. So we believe that we have several of our products that can address and already address other verticals like, for example, in the pharma market and construction market. So the diversification, both geographically speaking, like and sectorally speaking, gives us potential relevant margins. So thank you for the question.

We have two more questions from Gustavo Farias from UBS.

What are the main optimization and OpEx leverages as of now? How do you perceive the evolution of the sales life cycle and implementation with the customers? And what do you expect from the new commercial approach in each business unit?

Thank you, Gustavo. Nicolas, I'm going to answer the first question about the OpEx leverages, and then I'll give the floor to you, okay? So the question is about the main levers for us to optimize OpEx. Like I mentioned, we are looking for several fronts to reduce expenses with a clear objective to bring recurring cash flow to the company within the long range. It's important to consider that Neogrid has a healthy cash position. And -- but we all understand the importance of having cash flow in a recurring way so that we can prioritize long-term investments. So we have made these important decisions, reviewing costs with suppliers in general and always thinking about the return on the investment. In fact, we need to bring that. We are applying a lot of artificial intelligence in our processes, digitalizing whenever possible for us to have a better capacity to serve with lower cost and at the same time, increase the perception of value to our customers with no rupture. And finally, Gustavo, I also wanted to emphasize what is our concept of OpEx, cash generation in a recurring way. So when I do that, I am considering the expenses with an effect in the cash flow, but we are also considering our investments. So we have optimized a part of our OpEx because we consider -- and we consider everything that was done in terms of cash flow to reach this effect. Nicolas, if you want to talk about the evolution of the sales life cycle and the implementation of the clients, please do.

Yes. Once again, thank you for the question. But with the new organization of the business unit that we have conducted along too and consequently, with being closer to our customers, we see that this has already accelerated our sales cycle. We saw that in June and in July as well. So the structure of customer success for the business unit has been proving to be a very correct decision because we are really customer-centric, and we are showing more capacity to show to the customer our capacity to accelerate the onboarding process and to offer more efficiencies. So this is how we can improve these deliverables in a continuous way. So we're working with more speed in terms of the implementation of the product and because this increases satisfaction, and it also accelerates operational expenses. And we are focusing and monitoring very closely the lead times of product implementation, implementing new technologies to improve this process. So Gustavo, once again, thank you for your question.

Our last question comes from [ Fernando Duarte ].

He says, in this short period of time, you are already announcing several measures that sound relevant for the course of business. Is it possible to see changes in the operational performance? When we will see some concrete results?

Thank you very much, Fernando. Well, I believe that with the elimination of this matrix structure, like I mentioned in the question of Gustavo, we see the commercial team more integrated in operations, and we already see some very good sales results within this short period of time. I was really surprised with the capacity of our teams to absorb this change. Of course, that time will tell more with our implementation cycles and all that, but we already see some positive results. But what makes me more enthusiastic about that is the collaboration environment that we have. And one thing that always surprised me positively is that the excellent professionals that we have here at Neogrid. So I believe that we are with the right people at the right place to deliver value to our customers in what we have as a potential.

The Q&A session is closed. So now we would like to give the floor to Nicolas Simone, so he can make his final considerations.

Okay. Well, first of all, I would like to thank everybody for your participation, for sending questions and say some closing words. And one point that I consider very important is that consistent deliverables and clear vision is what sustains a value journey within the long range without forgetting the short range. So we have already started this trajectory with focus and discipline, prioritizing what really is important. We have a very committed technical team and a sound client basis and a very well-defined agenda to accelerate our growth. And we are executing with speed and conviction, and we are available to continue showing this evolution to the market. So once again, thank you all for your participation, and see you soon in the next earnings calls.

Neogrid's webcast is closed now. It's finished now. Thank you all for your participation, and have you all a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]