Romi S.A. (ROMI3) Earnings Call Transcript & Summary

Good morning. Welcome to Romi's Conference Call, where we will discuss the results for the first quarter of 2025. Before proceeding, I should clarify that this conference call is exclusively for investors and investment professionals. Any statements that may be made during this conference call regarding the company's business outlook, projections and operating and financial goals are merely forecasts based on the management's expectations regarding the future of the company. These expectations are highly dependent on market conditions, the general economic performance of the country, the sector and the international markets and are, therefore, subject to change. Please note that this conference call is being recorded and held in Portuguese with simultaneous translation into English, accompanied by the slides available in the Results Center of our Investor Relations website at www.romi.com/investors. [Operator Instructions] With us today are Mr. Luiz Cassiano Rosolen, CEO; and Mr. Fabio Taiar, CFO and Investor Relations Officer. Initially, the executives will present the results of the first quarter of 2025 and will then be available to answer your questions. I will now turn the floor over to Mr. Luiz Cassiano.

Good morning, ladies and gentlemen. Thank you very much for attending Romi's Q1 2025 earnings conference call. We started the year on a positive note. In the first quarter '25, we've had a significant growth in order entry in the Romi Machines and B+W Machines business units, reflecting our customers' trust in our solutions and our commitment to their success. In Romi Machines, order entry grew 31.2% compared to the same period last year with growth in both the domestic and foreign markets. We also recorded significant growth in operated margin, reaching 17.5%. In B+W, our operation in Germany, we had a significant performance. Order entry almost doubled compared to Q1 '24, amounting to BRL 134 million, which increased our order backlog to BRL 430 million. This result demonstrates the effectiveness of our strategy of delivering customized, highly complex technological solutions for the most demanding markets. In Cast and Machined Parts, despite the challenges still present in this quarter, we observed the first signs of recovery in the agricultural segment and expect a gradual normalization of productivity over the coming quarters. I would also like to highlight the continued performance of our machine rental solutions and our fintech [ prods ]. Together, they have driven our business expansion despite fluctuations in addition to reinforcing our role as a close partner to our customers. In the quarter, rental revenue grew 27.9% now, representing approximately 25% of the revenue of the Romi Machinery Unit. We closed the quarter with a 41.4% growth in consolidated order entry and 31% in net revenue, a direct reflection of our ability to adapt and innovate even in the still changing macroeconomic scenario, still challenging. We continue investing heavily in technology, connectivity, AI, new generations of machines, and most importantly, in the development of our team. We entered 2025 prepared and confident that our competitive advantage will continue to generate value and sustainable results. I will now hand it over to Fabio, who will provide more details on the financial results for the quarter. Thank you very much.

Thank you, Cassiano. Firstly, good morning to all. Thank you for joining us in our conference call. Well, I will begin with the quarter highlights. Order entry amounted to BRL 422.4 million, focusing on Romi Machines and the B+W German subsidiary, which represents over the first quarter of '24, an expressive growth of 41.4% in volumes of new entry. I would also highlight the operating revenue, which reached BRL 273 million, a 31% growth and mostly coming from the Romi Machines and B+W Machines Units. Adjusted EBITDA this quarter reached roughly BRL 18 million, which represents a 6.7% margin. And we would also point out the order backlog. We finished the first quarter of '25 with a very robust order backlog, 37.4% over March 2024 results and also higher than December 2024. And we are quite positive with these results looking forward to the next quarters of 2025. In terms of order entry, beginning with Romi Machines, the order entry also had an expressive increase over the first quarter '24 with a 31.2% growth. And we have growth in the domestic sales and also a gradual recovery in the foreign sales volumes, exports, mainly with a recovery in the market in Argentina, which deteriorated over the past years. The net operating revenue of this business unit also grew above 18% in this first quarter. And together with the gross margin, it provided us an expansion in our operating margins, reaching 17.5%, 3.8 percentage points compared -- higher compared to the first quarter in '24. For first quarter, this is a representative margin. As regards B+W, we had a first quarter in 2025 with excellent projects in order entry, excellent projects that we've concluded. We doubled our order entry levels in the first Q '24, and therefore, by the end of March, had a B+W order entry of BRL 430 million, above March 2024, meaning this was formed already for 2025, a complete order entry and order backlog for '25 and also 2026 for the B+W order backlog. In terms of the profit distribution, we made a notice, a notification in JCP, we are going to pay out almost BRL 17 million. I would also point out the major plastic fair in the industry in Brazil called Plástico Brasil, which was held in the first week of March. It was a very positive fair for Romi and for all the other participants. We had the opportunity to launch new machines, mainly in blowers and injection. And we had expressive results, positive results in relation to the fair, Plástico Brasil. Now turning to conjunctural indicators. The data that was available in late 2024 indicate the GDP, which is the largest blue -- the darkest blue column and also the gross fixed capital formation in lighter blue, always compared to the previous half with growth levels. And by looking at this indicator in a more stratified manner, the transformation industry has presented growth compared to the gross fixed capital formation. This is something we also see on a daily basis in the domestic market. And on the next slide, we see that the capacity -- the average installed capacity utilization over the past years has grown in 2025 in the first 2 months, at least. We have also reached the best possible levels, reaching 69% in February 2025. So at a high level in the industry, customers have a significant volume of orders. They are operating in an accelerated fashion, production fashion. Maybe what we still cannot see, as shown in the chart below, is -- has to do with trust. Trust since late 2022, trust levels ranged around 48 and 52 points, which is, well, maybe something in between a positive outlook or a neutral outlook, indicating that the current moment for the industry is still favorable. However, the macro environment with the political-economic scenarios are not bringing as much trust to the plans to the mid-term among customers. In terms of business units, and we have, of course, our Cast Machines, in Romi Machines, we have a wide range of offerings. Our machines are used in different industries -- in different sectors in the industry. In Machines and Equipments, we have a wide range of types of Machines and Equipments that our customers have been using. Our customers have been using our machines for different purposes in their manufacturing process. And this is something, well, that also drives performance in other sectors in the industry in packaging. Mainly in plastics and processing and blowers, we've had good results. Automotive, may be is more sluggish, but still is representative in our revenues. Anyhow, we have been looking at the main consumer markets and we are looking at Machines and Equipments as well that are used for different purposes and services that are provided by customers, by players in different segments of the industry. And as a conclusion, we believe that, in fact, different sectors have a steady demand and still need machines. We are aware that B+W is more concentrated in certain manufacturing sectors. In the first quarter in 2025, we've delivered machines mainly to the engine manufacturers and also to the Construction and Mining sector. Machines and Equipments, Cast machines, Machines and Equipments, well, we have Rough and Machined Cast Iron Parts. Similarly, for Automotive and Agricultural Machinery, as Cassiano mentioned, is picking up, is recovering in the first quarter, and the outlook is that this should continue, this trend should continue. And mostly for Rough and Machined Cast Iron Parts, we should see a growth in production volumes over the next quarters, mainly driven by the agricultural segment. As per our net sales per business unit in consolidated revenues, here we have the growth levels of the operating revenues of B+W in the first quarter was expressive. In reais, it almost doubled, 94.8% with expressive representation. Romi Machines, despite the growth, is actually spread out because of the B+W growth as well as Cast and Machined. Despite the growth, it's not as representative as a significant growth of the B+W revenues in the first quarter of '25 over the first quarter of '24. As per the sales distribution, Brazil still very representative in total revenues. Mainly the first percentage of the first quarter in '24, we see a higher representation of Asia because of the deliveries of B+W machines, mainly to customers in China. Asia, therefore, had grew from 12% to 14%. On the other hand, we had the inverse happening in the U.S.A., B+W has delivered, well, as an important package of technology solutions in the first quarter of 2024 back to a customer -- a U.S. customer. Therefore, this explains the decline of the U.S.A. share in the consolidated revenue. And Latin America remains at the same levels in revenues. But as mentioned, there's a recovery in the volume of new orders in Latin America, mainly from Argentina and has continued -- remained stable in the first quarter of '24. Now looking at the order entry, the first quarter for Romi Machines was quite strong with new businesses, a 31% growth over the first quarter in '24. And here, we have grown in the domestic sales and also with foreign sales, both driving growth, therefore, and both in domestic and foreign sales, therefore, resulted in this higher order entry level, which is also higher than the first quarter of 2024. B+W Machines, as mentioned, increase in order entry levels, which is significant in the first quarter of 2025. We have orders for 2026. And in terms of growth, it's double the number -- the volume of entry orders of 2024, first quarter, which is also reflected in the growth of the B+W order backlog for the 2025 and 2026 deliveries. And Rough and Machined Cast Iron Parts, we have slower growth, especially because of the Agricultural segment. And we have these 3 business units results reaching 422,000 new order entries in the first quarter of this year, representing a growth that is over 41% over last year's quarter, 1Q '24. With a significant entry -- order entry level, our order backlog also had an expressive growth, in relation to March, 27.7%, and December 2024, 25.5% growth, which gives us a positive outlook on the fact that we will be able to maintain these results over 37%. It's above BRL 300 million of backlog, a significant volume for this business unit. B+W, BRL 430 million roughly. These are orders for '25 and '26. Now in 2025, we are going to focus on execution. And Rough and Machined Cast Iron Parts also grew, although at a lower rate, but also indicating a gradual recovery, mainly in the Agricultural segment. As regards our profitability, in the first quarter, we observed a reduction in our gross profit, mainly in the B+W and Cast and Machines Units, as we had an increase in gross margin. Here in B+W, well, we have mainly 2 factors. Firstly, the technology package that was delivered in the first quarter of '24 had a gross margin that was far higher when compared to [indiscernible]. And secondly, a decline in the sales of parts and services with -- of course, we have sales reps on the field delivering the machines that we sold last year. And for Cast and Machined Parts, especially because of the downtime at the end of the year in migrating lines, we had a slower recovery than we had imagined. And this unit brings us a fixed product that is significant together with the lower sales volumes of the first quarter. We had this negative impact on the operating margin of Cast and Machined Parts in the first quarter of this year. As regards the EBIT with the lower gross margin despite the sales volume, we had a decline in the EBIT margin of 0.5 percentage points. In relation to the EBITDA, we have maintained the absolute EBITDA volumes. Now with the sales growth, we had a 2-percentage point loss in this margin. As regards the net income, it's 10% above -- 10% higher in terms of margin. There was a decline of less than 1 percentage point, reaching in the first quarter BRL 10 million in net income. In terms of sales per business unit, in Romi Machines, we had growth in gross margin, and the first quarter in '24 was significant already, and there is an increase in volume, a higher representation of the rental revenues and the profit of 2025 and the exchange rate as well. Over the period, there was a depreciation of the reais, which had a positive impact in foreign sales, export margins with the expansion of the gross margin. We also had an expansion of the EBITDA margin in the first quarter, meaning 4.6% is a considerable margin for a first quarter. In B+W, as mentioned, despite an important evolution in revenue, mainly with the mix of products, we had an important reduction decline in gross margin. This margin -- this decline in gross margin is smaller when looking at the EBITDA and an expressive growth in revenues. We were able to dilute operating expenses, but there was a decline in the EBITDA margin over the first quarter of '24. And finally, in Machined -- Cast and Machined Parts, we had stop -- the stoppages at the end of the year for maintenance, and one production line was transferred, was migrated, and it picked up more slowly than we had planned. And this had a significant impact on this quarter's margin, both the gross and the EBITDA margin. And mainly the absolute growth with the revenue growth was smaller. As far as the financial position, we remain solid, finished the quarter with solid cash and debt, the first quarter. We normally use more cash for the first quarter. This was a relatively small number. We are positive in relation to the cash generation from our backlog that was closed in March. And we -- our loans are covered by the cash volumes that we have. And in financial terms, we remain extremely solid. And our share performance compared to the Bovespa -- Ibovespa Index over the 2 years, we are quite below the Ibovespa Index. We have capital goods. Of course, you have to look at this fluctuation, sensitive macroeconomic scenario. Still, our shares performed below the Ibovespa over the period. Well, we will now conclude the presentation. We would like to thank you all once again for joining us in the conference call, and we will open the Q&A session. Thank you very much.

[Operator Instructions] We have a question from [ Cedric Mello ].

We commend you on the results. I'd like to learn more about the B+W Machine sales for the U.S. and Asia. Can the B+W Machines gain more market share in relation to the sector?

Thank you, Cedric, for your question. B+W manufactures heavy machines with complete turnkey solutions for major projects. These projects are global; U.S., Asia, China mainly and Europe also and Nordic countries. So I would say that this market is more oriented towards this type of solution. B+W is known by its solutions for large engines for energy generation systems. So the B+W's demand last year and in this first quarter is also tied to the global demand for the energy station generators. And most players in this market are B+W customers and see B+W as an important player for such applications. So this is more or less how it works. We have customers in the U.S.A., in Asia, in Europe, and there is a positive demand for deliveries in 2025 and also 2026. We have a solid order backlog.

Well, since there are no further questions, I will turn the floor back to Mr. Luiz Cassiano for the closing remarks. Remember that the IR Department at Romi will be available to entertain questions. Over to you, Mr. Luiz Cassiano Rosolen.

Thank you, Julia. Thank you, everyone, for attending the first quarter of 2025 Romi's earnings release. We will be happy to entertain additional questions. We will report the second quarter results on July 15, 2025. Thank you, and I wish you all an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]