Orizon Valorização de Resíduos S.A. (ORVR3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the video conference of Orizon Valorizacao de Residuos to discuss the results relating to the fourth quarter of 2025. This conference is being recorded, and the replay will be available on the company's website, ri.orisonvr.com.br. The presentation is also available for download in the results center of the company's Investor Relations website. Please note that all participants would only be watching the conference during the speaker's presentations and after that, we will begin the Q&A session when further instructions will be given. Before proceeding, I would like to emphasize that forward-looking statements are based on the beliefs and assumptions of Orizon VR and on information currently available to the company. Such statements may involve risks and uncertainties as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should take into account that events related to the macroeconomic environment, the industry and other factors may cause results to differ materially from those expressed in such forward-looking statements. Present at this conference are Mr. Milton Pilao, CEO of Orizon; and Mr. Leonardo Santos, CFO and Investor Relations Officer. I would now like to give the floor to Mr. Milton Pilao, who will begin the presentation. Mr. Pilao, go ahead.

Good morning, everyone. Thank you very much for attending the call to discuss the results of the fourth quarter '25 and 2025. I'm here with Leonardo, the CFO. I always start talking about the highlights of the period. This first slide shows our figures at the end of 2025 in the fourth quarter. An annual EBITDA of BRL 504 million -- BRL 500.4 million, a growth of 15% year-on-year, basically driven by residue because the biomethane plants contributed very little to the results of 2025. Now this quarter, they will start to strongly contribute. So this shows that the company remains as an avenue growth in waste, especially coming from increase in price volumes, increased margins due to the reduction of operational costs that drives a strong growth even in the division of landfills that only works based on the margin gain. So we have an EBITDA of BRL 134 million, which is almost 40% higher when compared to the same period of last year. But there is a growth of carbon credits here that was important. On the right side, I talk about the predictability in the final disposal. There was a growth in IPCA of 3.9% at the average price, plus BRL 8.9 million in volume. There is an average price curve. There's a lot to be delivered still, but we are in this curve constantly. And the recurrence in the sales of carbon credits is very important that continued throughout the quarter. So we went back to selling carbon credits continuously. So BRL 35.5 million in carbon credit sold last year at around USD 6 of price. So that shows that, again, we are entering a sales continuum that will be seen throughout 2026. In terms of capital structure, that is solid. We talk about the extended debt profile. Leo will discuss that further. We have a low leverage and an extended debt profile. We had a follow-on offering on May 2025, and we raised BRL 635 million. There will be a new round at the beginning of next year. So there's still room in the balance sheet for organic and inorganic growth, especially after the closing of the acquisition of Vital, which will improve the space for further organic and inorganic growth. The evolution of the biomethane. The results of the delay of the operations -- the beginning of the operations of Jaboatao and Paulinia plant, there was a delay, of course. But the good news is they are now in operation, and we have a major event with the governor and major stakeholders of the region in Jaboatao. The plant is operating at its maximum level. It's now operating at 80,000 cubic meters per day. So it's very close to the 110 upper limit. Its CapEx online. OpEx operating slightly below what was predicted. So we have the completion of the implementation stage of the biomethane plant in which was very successful in terms of OpEx and CapEx. The delay of the beginning of operations was a problem of adjustment of the pipelines to distribute the gas. So we had to step by step in increasing the output of gas because they had to adjust the pipelines for their hundreds of customers that buy biomethane. So there was a ramp-up that was driven by Copergas, the plant had capacity to be operating since November. But the important news is that we're -- that is in the past, we're close to its full capacity, and we should attain 100,000 cubic meters in the next 2 or 3 months according to Copergas plants. So that's a successful attainment that will have good results for 2026. In addition, the plant of Paulinia is also in operation within expected CapEx with an operating OpEx slightly below what we projected and Paulinia is already delivering 100,000 cubic meters per day. So you have 2 plants in operation that will provide excellent results in 2026. Now we talk in the next slide about it Vital part in December last year and the signing of the agreement we had the incorporation of Vital in the exchange ratio of 70% Orizon and 30% Vital payment in shares. And with the corporate governance in which we'll have the casting vote and to appoint the Chairman so that the management of the company can remain the same way that Orizon was being managed recently. And there are many synergies mapped will improve the projects of integrated management, reduce costs and increase volume capturing of biogas and sales of carbon credits, efficiency and dilution in SG&A and optimization of the capital structure because once Vital is integrated and incorporated, we will deleverage the company even further and open more space in the balance sheet. So this would be a transformational incorporation that will be major given the size of the company. And with the prospects of multiple growth as it is incorporated in the platform of Orizon. In the Slide #3, we talk about the auction of -- capacity auction in 2026. The 2 plants, the Jaboatao and Paulinia that became operational this first quarter left 2 plants that were invested by the company that would be shut down when these 2 biomethane plants are at their full capacity. So we had the capacity auction, Orizon was got ready to enroll in this auction to look for opportunities, and we won the auction with the 3 plants that will bring for the assets that had been amortized already, and annual fixed income of more than BRL 100 million. So we're talking about VPL that was not in our -- net present value that was not in our radar, but the capacity of Orizon to take part in this auction brought an additional value for shareholders with these 3 assets that are already amortized and will provide recurring revenue. Now finally, I have gone through these 2 plants. We have made opening ceremonies in Paulinia with the Governor of [ Tarcisio ] 3 or 4 weeks ago. Tomorrow, we'll have the Governor of Pernambuco opening Jaboatao. Of course, these are more of a celebration event. The plant is already in operation. In addition to this celebration event, we have invited several investors, and we thank those who are able to attend several investors who will attend a plant event tomorrow. We'll have biomethane Jaboatao Day tomorrow so that investors can see on site what I'm talking about. Your CapEx, it's in line, OpEx operating below expected, what is the production line, you can visit the plant. It will be a very [ in string ] opportunity because from a distance, you cannot see the size and the beauty of the operation and the project. So we'll have a live event tomorrow with investors taking part -- attending in person. And I hand the floor to Leo, who will talk about the financial highlights of the fourth quarter in 2025.

Thank you, Pilao. Good morning, everyone. I'll start with the operational highlights. We start talking about the volume of waste. And I think we had an important growth this year of 2025 and also comparing 4Q '25 to the 3Q '25. And in energy generation and carbon credits, we had a decrease that was linked to the implementation of biomethane plant. So the biogas was redirected to biomethane, so disconnected from thermal plants and moving to biomethane. So there was a temporary adjustment in carbon generation and generation of energy in general, because the gas was generated to biomethane and the thermal plants will be contracted in the capacity auction that we won. In biogas capture, there was a drop when compared to last year, which is also linked to these adjustments given the biomethane implementation, but it's in line with the third quarter of 2025. In the next slide, we show the evolution of the net price for final disposal. We made small adjustments since yesterday, adjustment in prices. The reported price, we see a drop when compared to the last quarter and the growth when compared to last year. Nothing structural. So we don't see any yellow flag here in terms of growth above inflation. If we look at the fourth quarter of 2025, we had a recomposition of price of about approximately BRL 1. So when comparing year-on-year, there would be a stronger growth, but we see prospects of real gains, actual gains in price. And we expect that for 2026 also. So a good performance of IPCA plus 4% per year, year-on-year. Regarding the financial highlights, a net revenue that's 15% higher comparing the 4Q '25 to 4Q '24, a gain in gross margin and EBITDA significantly bigger when comparing 4Q '25 to 4Q '24 and slightly bigger comparing 4Q '25 to 3Q '25. CapEx, no news here. Basically, the investment level is maintained with the Barueri project and biomethane that start operating -- Barueri starting operating in 2027. We had the implementation of biogas plants and also treatment plants. And these 2 things will be reverted on the short run. On the next slide, we talk about capital structure. We had a follow-on offering in 2025 and the liability management transactions in which we had the reduction of capital cost and increased -- extended the debt maturity and the bridge loan for Paulinia was settled because we signed it, made the first disbursement in Paulinia at the end of the year, and we paid for 2 debt -- we made 2 important transactions to increase the maturity. So we have a capital structure that's quite balanced and ready for 2026 and coming years. I would like to remind you that with the incorporation of Vital, we create even more room in the balance sheet to capture further growth opportunities. And we have the subscription bonus from the last follow-on offering that will be converted in the first half of 2027. I think I'll turn back the floor to Pilao for prospects, and then we will open for the Q&A session.

Well, prospects for this year. First, given the importance, the incorporation of Vital because that's very important, we expect to close the transaction in the same term between the second and third quarter. And we're getting ready for this closing because given the transformation that is expected. Also, we expect to capture further synergies when the 2 companies are operating together. That will certainly be transformation now for Orizon and we will consolidate our position as market leader and also as a platform to -- for valorization and treatment of waste. We have an even greater amount of waste under management. The second point, we've been asked if after the consolidation of Vital, we would stop the M&A plan. And what are we going to do with such an asset-light balance sheet because after the consolidation, we have -- we reduce leverage with a very asset-light and capital structure-light balance sheet. Well, the M&A structure will strongly -- will be enforced. We have not stopped that, and we don't intend to do so. We expect more inorganic growth for this year with further acquisition of landfills. So this is not an agenda that will stop for now. Of course, the focus of the company is 100% on the integration of Vital given the size of this transaction. But the M&A area continues to work. And during the year, we'll probably have further acquisition of landfills to further boost the inorganic growth of the company. For biomethane, I have explained that we have 2 plants in operation and in ramp-up and for implemented, those who will visit Jaboat o will be able to see that in person. This year, we will have major results and achievements coming from these 2 biomethane plants, consolidating the results they can bring for the company and obviously, being able to multiply that to other plants that are under construction. We have 4 plants that are being implemented and then we'll provide results for coming years. The waste management plant is also on track, and we expect to begin its operation in January of 2027 with good results for the company. This is a plant that's being built for 3 years and will be a landmark in the waste transformation in Brazil. As for waste, in terms of expectations for this year, we'll have very good results in terms of volume and price once more. We had price reviews already executed for the first quarter and further reviews contracted. And we expect to attain good volumes, especially coming from Ecoparks ramp-up. In carbon credits, you should expect recurring sales every quarter. Now I think that the carbon agenda is consolidated and will provide sales results in carbon credits because there are several projects registered, and we have a good inventory of credits so that the commercial area could have a good time delivering such credits during the year. Okay. That's it. So let's open for questions, and thank you once more for attending the call.

[Operator Instructions] The first question comes from Maria Carolina Carneiro from Safra.

If you could give us an update on the time line for approval of the capital -- the merger with Vital. What should we expect during this year? What is your expectation? And also, what is your strategy after this event? Because we're talking about a change in the company's portfolio. If you could tell us what are the main drivers for growth? I know that you're incorporating a new business segment, but what is your priority for this year?

Carol, I'll start and then I'll talk send the floor to Pilao. It's hard to talk about time line to set on stone because it depends on CADE and the granting authorities and third parties. But based on what we see in the market and third parties and we believe that this should happen between the end of the second quarter and the beginning of the third quarters. That's not set on stone, but that's the best expectation we have. If things go faster than expected, maybe earlier, but this is a good scenario.

As for synergies, Carol, there are several. The incorporation of Vital differently from other mergers and incorporations in other industries brings a company that's very similar to Orizon in terms of consistent results. I mean those who have looked at the results of Vital disclosed yesterday, I guess, I could see how similar they are to the type of performance that Orizon has delivered for some years now. So the first beauty of this situation is that we expect to have assets that will be merged that will create a platform with another size and that will have much bigger synergies. What are the synergies? First, synergies in landfills because we have 18 and Vital has another 12 landfills. So we have important synergies regarding operational flow. Since Orizon doesn't have other activities in the area, it is specialized in having an exceptional performance in cost per ton in the operation of landfills as well as in transformation of waste per ton of biogas. So we see some significant opportunities in the 12 landfills of Vital that will provide gains for the new platform of operations of the company. On the other hand, Vital provides an expertise we don't have, which is of integrated management. The integrated management expertise will help us to multiply the value we can extract from each ton of waste. When you operate only in the valorization from the destination onwards as we did, there is a major limitation in terms of what you can extract in terms of reais per ton for each waste. So with the integrated management, you add other services that can multiply it by up to 3x, the generation of reals per ton for each ton of waste maintaining likewise, the landfill as the driver to entry -- barrier to entry. So if the landfill is the hub, integrated manager can come as a PPP or a concession and add value to waste, having the landfill to protect the margins and to have an important return for shareholders in the long term. So this is an important drive and Vital has expertise because they have a controlling interest in the largest concession of the country in integrated management. So this will add a lot to our platform. And in coming years, you will see the company implementing this type of contract in the 18 landfills that we have under our operation. In addition, there are traditional synergies such as reduction of SG&A, lower scale costs, capacity of gains in supplies because you have a much greater scale for procurement of the materials we use to provide the services. So there are several gains that will come as a consequence of the incorporation. And you will certainly see a platform that will be able to maximize joint gains.

Our next question comes from [indiscernible] .

The company sees the opportunity to recover critical minerals and rare lands based on waste such as electronic waste, RSU. Is this a front considered for the future? Or are you doing this in this operation?

Thank you for the question, [ Thierry. ] Yes, this is Leonardo speaking. We do see the recycling of materials as an interesting avenue. But our main focus is today is on things that we operate and we have -- we master. And we see the returns coming in a shorter term, integrated management, carbon credits, and we are making partnerships with third parties also, but we don't have any material projects in those fronts for now.

The next question is from Joao Pimentel from Citi.

Just about the transactions after the closing, do you see any prospects of questions raised by CADE in terms of market concentration since in some assets, there is an overlap with the assets of Vital. Is there anything in that area in your radar?

Joao, this is Leo speaking. We are quite comfortable. There is a process that's public. You may have had access to that in terms of progress. We provided the material to CADE but we are complementary companies. So we don't believe that this will trigger any issues at CADE. We cannot anticipate what the final decision of CADE will be, but we don't believe that there's nothing that will place the operation at risk. It's -- the process is according to ordinary procedure at CADE. And it's supposed to be a simple process. We see that in other markets that have -- today here, we're talking about infrastructure projects that waste logistics is a main barrier to waste management. So thinking about the generator and destination, disposal cost. So you have to take into account the logistics cost. So we don't see any significant aspect that should have this concentration at risk. Our lawyers believe that there will be no major problems.

The next question comes from Felipe Lima.

About Vital, I saw that you reported the figures of 2025. Could you comment if the results were in line with what was expected?

Thank you for the question. This is Leonardo speaking. Yes, when we disclosed the incorporation, the revenue seemed a bit stronger, but it was more because of the macro vision. It is a bit lower, but margins are stronger naturally because the EBITDA is slightly bigger. So the way they reported it and also feeding their websites with audited numbers, that gives a comfort to Orizon because we were very comfortable at the due diligence phase and we knew the company well, but also to investors, so investors can confirm the figures and the numbers that were disclosed at the time. So they are pretty much in line, slightly above. The net income is much higher and the company has a very asset-light, and is able to capture any opportunities for growth after the transaction is finished.

Next question comes from Carla [ Golowski. ]

In the opening talk, Pilao commented that Jaboatao have a limit of 100,000 cubic meters per day of methane. But in the material fact, the company said that this company could reach 130 or 50 cubic meters per day. Could you comment on that?

Well, yes, the first contract we signed with Copergas is 100,000 cubic meters in Stage 1. There is 2 initial stages, 60 and then that was increased to 110 cubic meters. And then this 110,000 cubic meters, that's what I said about the first stage. When we said 130 in the past, it's because we have the option at Copergas agreement. Just to remind you, the invested plant is supposed to operate between 100,000 and 110,000 cubic meters. And so the contract gives me the possibility of communicating Copergas 1 year in advance that will increase that to 130. And then Copergas is obliged to take that. So that's why we can reach 130,000. And the plant that is in operation has given us good news. It's operating at an operational cost slightly below what we imagined, and it's performing quite well. In addition, in the last 2 to 3 months, we had the limitation of distribution from Copergas. Now we have agreed to time line or schedule in which we are operating on with 30,000 now, and we reach 60,000 and 100,000 in the next 45 days. When we get there, and we'll make tests and we -- but the plant is so robust that we will be -- it will be able to produce even more than 110,000. If that happens, we can notify Copergas and say, next year, you can change to 130, and we will continue with this plant. But if we do not stay with that plant for 130, we have already waiting CapEx to increase another plant to 130 because we have biogas to produce 130. So today, the limitation is the capacity of the acquired plant, which is 110,000 cubic meters. But we'll test it to see if we can operate this plant above the technical limits, not technical in terms of problems, but the limits that were contracted to see whether we need a new CapEx to go to 130 or if we'll remain with this plant and increase its production to 130.

The next question comes from [ Mateus ].

The company had an important year in carbon credits. What are the prospects for the next year? And what's the management opinion for the regulated market in Brazil?

This is Leonardo speaking, Mateus. Thank you for the question. Pilao mentioned in the opening remarks that the carbon credits was a very good year, 3 continuous quarters reporting revenue, and we expect to maintain this pace. It's always hard to state that this will be true every month or quarter because it's on a transaction basis. But the carbon credit market is part of our structure should be seen as something recurring from investors and the market in general. The regulated market is important. We've seen sensitivity from the federal government to create and define the rules because this would unlock further value. And there is an agenda that along with society and other companies, we were trying to drive this agenda. But we depend on the government. But we see that the government has created the basis to define that in the short run, and we're optimistic about it. This would put prices at a higher level, creating demand from other customers. Currently, we have 15 different customers this year in the voluntary market. So the agenda would be even better if we have the rules for the regulated market defined.

Just adding that we should see, as Leo said, a less erratic sale a more regular sale of carbon credits. And this year, we don't envisage the regulated market because that depends on the government. The regulated market will certainly unlock the possibility of selling all our inventory. We sold 2 million credits last year. We plan to sell even more than that this year. But this is still in the voluntary market. We sold credits last year to be delivered this year, next year. And so we increase -- we envisage an increase in the sales of carbon credits this year. But even so, we won't be able to 0 our inventory because that is higher than we could -- that could be absorbed by sales in the voluntary market. So the inventory remains. So as soon as the market is ready, we can sell it. And when the regulated market becomes operational, we will be able to lower our inventory at better prices. This is our expectation.

The next question comes from Guilherme Thome from [indiscernible] Investments.

Could you comment on your view for the fuels law for the future and its impact for the company? To what extent is this law considered in the decision-making process? In addition, how do you evaluate risks regarding the change in the administration?

This is Leo speaking, Guilherme. I think that the future fuels law only contribute to biomethane. All our contracts were built based on the non-mandatory market. So it's the customers want to have this molecule, and we provide them. But that creates -- the law creates an extra demand. So it would only add to this market that already has a supply that's not so big. And the waste market is well positioned because we have a capital cost that's lower than other options compared to biomethane. Orizon has not yet sold biomethane for urban mobility that will create further demand. So in the short term, we should see 2 major groups of customers. One is the fuel from the future -- for the future and the other one looking at biomethane in mobility. In terms of investment prospects, we don't -- our vision doesn't change. The company believes that we should continue to invest in biomethane plants after closing the first long-term agreement. So we only start to build a plant in disburse CapEx after we sell a contract to sell biomethane. The biogas long-term agreement, it's similar to what we will do in biomethane. So that creates another demand and one more alternative for sale for long-term agreements, and then we can start investment. That's very important factor, but the dynamics in terms of investment remains the same. We'll only invest in biomethane after we have the long-term agreement.

The next question comes from Stefan [ Duran] .

With regards to the collection activity, the company always said that its focus was on final disposal and now you announced the purchase of Vital. How about this activity after the acquisition?

That's true. We say that the entering the collection activity will be through the integrated management contracts. Let me explain that once more. The integrated management is a PPP or concession contracted for the long term with a return rate that is predetermined and the company will be the stability of that agreement in the collection that will be part of the landfill and the valorization of waste. It's different from a stand-alone collection contract in which we always said we did not intend to sign and we continue with the same opinion. You won't see Orizon entering into onetime collection agreements because these provide low margins, little barriers to entry, low return to shareholders. So when we talk about long-term agreements, that's the profile of Vital. If you saw the material disclosed yesterday by it, collection agreements within integrated management, it's collection with investment and guarantee of a perennial contract, long-term contract. So this type of contract is going to be added to our current landfills. This is why it's a collection as part of the integrated management contract. And this is where Orizon will operate and Vital has expertise in it because it has several contracts in that modality and operating with high margins and important returns to shareholders.

The Q&A session has now ended. We would like to turn the floor to Mr. Milton Pilao for his final remarks.

Once again, thank you for attending the call and the high number of participants. We're very happy with the results. We expect a very successful year in 2026. And for those who will be with us in Jaboatao plant, see you tomorrow. Have a good day.

The conference call of Orizon has now ended. We thank you all for attending, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.].