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

Good morning, and welcome to Roman's conference call where we'll be discussing the earnings of -- the second quarter of 2026. But before proceeding, I'd like to clarify that this conference call is intended exclusively for investors and investment professionals. Any statements made during this call regarding the company's business outlook, projections and operating and financial targets are mere forecasts based on the management's expectations regarding the company's future. These expectations are highly dependent on market conditions and the general economic performance of the country, the sector and international markets and are, therefore, subject to change. [Operator Instructions] Joining us today are Mr. Luiz Cassiano Rosolen, CEO; and Mr. Fabio Taiar, CFO and Investors Relations Officer. The executives will first present our earnings in the second quarter of 2026 and will subsequently be available to answer your questions. I will now turn the floor over to Mr. Luiz Cassiano.

Thank you, Julia. Good morning, everyone. Thank you for joining our conference call of the -- for the earnings of the second quarter of 2026. This quarter, we had a major change regarding the previous some quarter, but still far from what we consider appropriate performance levels. We are in challenging conditions with a very low confidence level on the part of industrial entrepreneurs and they're really cautious. In spite of this, the Romi Machines backlog remained solid, showing the company's ability to keep generating business opportunities. So we finished the quarter with a net operating income of BRL 309.8 million. Our adjusted EBITDA was BRL 26.8 million, a margin of 8%. And and before 27.7% in the same period in the previous year. As for our first quarter, we had a major recovery of our activity and profitability although results are still below what was reached before in the past. The order backlog reached BRL 309.4 million. up 6% compared to IQ 26. We finished the period with a consolidated portfolio of over BRL 800 million, which is really solid. This portfolio represents an important foundation for the following quarters. Our German unit BW, the projects were delivered according to schedule. There was a major evolution in its revenue and it finished this quarter with a solid order backlog, 6% higher than the previous quarter. And we are confident in its ability to develop high complexity, technological solution is also highly customized to our clients in Romi Machines. We had important revenue increases. Our diversification strategy is on. We had an additional 94 machines that were rented. We also have new solutions like Romi IA and Rome pulse and a new generation of vertical lanes, and that reinforces our commitment to innovation in the cash in machinery unit. The challenge that situation is really challenging, considering the acceleration in the commercial automotive and agricultural sectors. We focus on automation and also redesigning our operating processes. We finished the quarter with a consistent recovery compared with the first quarter, but there's a lot of work to do to recover the profitability level that are expected. We have a robust order backlog our business is on to improve our operating performance. Thank you to our clients, shareholders and all business partners for their trust. Now Fabio will give you more details about our results this semester.

Thank you, Casciano. First of all, good morning, everyone. Thank you very much for participating in this conference call. So I will start by the highlights of the second quarter of 2026, I think we need an overall message. We had a relevant recovery in the second quarter. We finished the quarter with a very robust order backlog and also development in our strategic fronts. We finished with a order backlog with very good numbers with BRL 487 million that was represented by the German subsidiary, BW and also with a solid order backlog for machines. The EBITDA was BRL 26.8 million in the second quarter, a margin of 8%. It's usually, of course, lower than the second quarter -- semester of 2025. The order intake of the second quarter was 209 million and BRL 486.9 million. So that's a little over 6%. And increase compared to the 2Q '25. We also had BRL 235 million, a growth of 5.9% in our net operating revenue compared to the second quarter of 2025. We should highlight the Romi Machines unit, especially operating revenue evolution in the BW subsidiary, which reached a revenue in the second quarter of BRL 88.7 million. So we delivered all the projects that were within our schedule for that particular quarter. And that means an evolution of our gross margins as well as our operating margins. We should also highlight that we have the participation in Mac. That's the most important trade fair in our sector where we presented not only new equipment, but especially new technology integrating artificial intelligence with a focus on our clients. The goal is to be able to provide support to operating efficiency in our client base. We also highlight that this is a very important year. That's the 70th anniversary of Romi set out the first car that was made in Brazil, and this will take place in the second half of this year. We'd also need to highlight our interest on equity that was BRL 5.6 million in June 2026. Now or indicators -- current scenario indicators. We have the fixed capital formation, there was a retraction of 1.4% in the first quarter of 2026 as compared to 1Q 2025, when you stratify the data, there's greater falls in capital goods, capital goods consumption. And that shows that the environment is still extremely challenging for industrial investment. This also shows that we need to be cautious, especially with the domestic market. Still on economic indicators. This chart shows the average installed capacity rate in 2026. So in March, we reached 69%. There was a retraction in April, 76% and there was a recovery in May. So we are back to 69%, and that is an average utilization rather stable compared to previous years as seen in the chart. We can also see industrial activity that is significant. However, when you look at our outlook, and that includes the trust from industrial entrepreneurs, it becomes clear that our scenario is extremely challenging, and there's low confidence when it comes to new investment. Now our business units. So who are our major sectors, what sectors demand our machines and our cast parts, cast iron parts. So Romi Machines, that's highly diversified -- when you look at Romi Machines, it's really significant. When you look at machinery and equipment, also companies providing services that work in many different industrial segments. And this shows that we have a wide wide diversity in the use of our machines in a wide variety of sectors, industrial sectors. Now BW machines. These machines are more customized based on projects and they are -- they concentrate on niche and we should highlight engines and systems, so many engines and systems for energy generation. And finally, Ron machine cast iron parts. In the second quarter, we have an increase in energy. So the deliveries in this segment were to the energy sector. Although this segment has little visibility when you consider how our demand will evolve in the mid and long term. As for net sales per business unit. SPW was the unit with the highest growth, it increases its share in consolidated revenue. Now cast iron parts, there was a reduction in sales. So it loses its share. It goes to 13% from 16% to 13% and Romi Machines. So a slight reduction as there was greater growth of BW machines. So Romi Machines now account for 59% of our up roaming consolidated revenue in the first half of 2026. Now revenue by geographic region. So BW grew all its revenue is outside Brazil. So BW in decreased Brazil share to 63% in Europe, where BW made most of its deliveries in the second quarter. There was an increase, 20% increase as compared to the first half of 2025 as well as in the United States where BW also made deliveries. So it increased from 2% to 8% in 2026. Asia accounted for 7%. And in terms of BW deliveries. And Latin America had a reduction, although, of course, Latin America, there were -- when you look into this and see the generation of new business, this decrease is not the same. So you have deliveries in Latin America and an America is expected to go back to a level that's similar to 2025. In terms of the order entry backlog, the second quarter of 2026, we had BRL 309 million in new orders, a reduction of 7.1% as compared to the second quarter of 2025. Now when you look at each business unit, roaming machines dropped 6.7% as we saw in the previous slide, the fixed capital formation is falling and the confidence level, again, is really deteriorated. We believe that in spite of that in our backlog strategy. When you look at rentals and sales of machines and also products, which is providing financial support. Among other solutions, with all of that, we had in the second quarter. In the first half of 2026, we reached a level that was similar to 2025. BW added new orders in 2026, a significant volume of new orders that 61 million, and that's a growth of 25.5% and as compared to the second quarter of 2025. Now Rough and Machined Cast Iron Parts. This is our major challenge with additional deacceleration in essential segments to this unit. When you compare this to what we saw in 2025, there was additional reductions, especially agricultural machines. In terms of our order backlog, Romi Machines in June, we reached a level that was very similar to March. So we have a significant backlog order backlog, especially in quarter 3, although, of course, the order backlog decreased when compared to June 2025. And but a major volume still that will be delivered in the third quarter. BW, Okay, there was a lot of sales with a significant volume of new orders in this led to a similar result as March in June, 7% higher or almost 7% higher than BW order backlog in June 2025. So -- and the deliveries are not for the second half of this year, but also a good part will also be delivered in 2027. And finally, Rough and Machined Cast Iron Parts, there was a reduction as a result of less business being generated. So the volume of orders for the second quarter of 2026 is lower. So the total consolidated order backlog at the end of 2026 is very similar to March at the end of June 2026 versus to March, with a slight reduction when compared to June 2025. Now operating margins, what we see in the second quarter of 2026, we had a reduction of our gross margin as a result of Romi Machines margins, especially because there was lower exports level because of the exchange rate and also because of additional commercial efforts, make sure that we kept a reasonable amount of new orders as we saw before. Although the macroeconomic environment is more challenging, we have been achieving to get a good number of new orders. Now Rough and Machined Cast Iron Parts also had a reduction in the gross margin because of its volume. And then on the other hand, there was a significant evolution of our gross margin of BW's gross margin, but that was not in at offset the reduction of the reduction of the gross margins of the other business units. So with this reduction of the gross margin, there was also a reduction in operating volume and profit, so 10.5%. So there was a decrease of 1.3 percentage points in our operating margin. Now the EBITDA margin also reduced slightly about BRL 1 million. 1 percentage points EBITDA in the EBITDA margin, that was a reduction of 0.8%. And as for our net income, the reduction was BRL 15.6 million to about BRL 14 million. So the second quarter, the net margin was 4.2%. In terms of the performance of our business units in the second quarter, we had a slight reduction in Romi Machines revenue margin reduction that was explained before for 2 major reasons. First the devaluation or depreciation of our exchange rate, which reduces our export margins and also the commercial efforts that reached a particular volume. We should also point out that our rental business have become increasingly more representative with a higher share of our revenues in some way, this offsets our margins. Now with this reduction of our gross margin and volume reductions, there's also an impact on our EBITDA margin. So in the second quarter of 2020, our EBITDA margin was 16.8% of our Romi Machines, now BW, there was an increase in revenue, a major evolution in its gross margin. And this is a consequence of our project mix increased operating efficiency. As a result, there was a reversion of the results of the first quarter of 2025 of a negative EBITDA margin of 9.3% to a positive EBITDA margin above 5% in the first half of 2026. And then the Rough and Machined Cast Iron Parts there was a more significant reduction, additional reduction the capacity utilization was relatively low. So the segment especially automotive and agricultural machines, there was an additional reduction. So there was a reduction in revenue as a result with an additional challenge when you consider this reduction of fixed costs. And as a result, both the gross margin and the EBITDA margin decreased. Now the financial position, we remain solid. So we finished this quarter with BRL 368 million in cash, net debt of about BRL 169 million. In the second quarter, there's cash consumption usually, most of the revenue takes place in the second half of the year. In spite of that, with the this reduction of our working capital. With a focus on inventory. There was a slight reduction of our net debt with a good outlook in terms of cash generation in the next quarters. In terms of share performance, we haven't evolved significantly. So the results of our -- when you consider the results or earnings of all our business units. And this has, of course, made an impact on the price of our shares and also a macroeconomic environment that is highly challenging for most sectors, especially in the industrial sector. So this is the end of our earnings presentation, the second quarter of 2026 at Romi. Thank you very much for joining us. We are here at your disposal in the Q&A session. Thank you very much.

Ladies and gentlemen, we will now start our Q&A session. [Operator Instructions] The first question. if Silver.

Good morning, thank you for answering my questions. When you machines rental, that consumes a significant amount of initial CapEx. How long does the management estimate that this will generate a positive cash flow that we'll pay up without the need for new capital raising in Mexico, for example. How has controlled credit with the amount that was granted?

Well, first, in answer to your question, let's consider our machine rental business. When you look at our CapEx, our CapEx -- gross CapEx is represented by new machines that were built and mobilized. There's also a significant order backlog for rental of machines, and that generates cash in addition to selling the machines that were rented previously. So we have a calculation of our net cash flow, an initial calculation of that amount. And since the fourth quarter of 2024, this unit has achieved a free cash flow that can be considered balanced. This year, we're expecting that as we finish the year, we're expecting this free cash flow to be positive. So that CapEx that last year was a little over BRL 100 million. Now what we have in terms of our backlog for rentals and also the resales of these machines after they were rented. This number has been higher than our CapEx needs. As for fraud default, had portfolio is less than BRL 235 million is the total amount, BRL 235 million, it's backlog is -- has a default level that is really low. As with other operations at roaming, what Romi does. We have exposure to credit risk. We keep the reserves for the -- for this equipment. And we have a very solid credit control and billing processes. And also for some specific tools, we can monitor the -- all pieces of equipment, if there's a default. We should also point out that when you look at fraud's portfolio historically and also our FINAME, which has a very similar credit risk. What we can see in the last 5 or 6 quarters is of stability in rather low numbers. Of course, this is always a concern. Credit risk remains a concern, but we have seen signs that there is good control in terms of default. And again, stressing this every piece of equipment has its reserved until it is totally paid off.

Good morning. Next question by Mr. Thiago.

Congratulations on your resilience. Can you talk more about renting. What is the strategy? How many machines were rented in total? Is it feasible to increase contract for 3 or more years, and stack increased the number of rented machines. What is the strategy for the sale of used machines?

Rental model is really clear with a very interesting value chain. What we see in renting is a great opportunity to make our client to produce with new machines and become more competitive. And as a result, to generate more value to their businesses with the rental investment that is lower. As Fabio explained. This means, of course, there's CapEx on the part of Romi, but that means more loyal clients, and that's really interesting for us because we can generate value fast for our clients. And these contracts are from 1 to 2 years. Why? Because these machines come back to Romi, we revamp these machines, and then we use this product, which is almost new to enter a market, we hadn't been that present with lower-cost machines, especially the Asian market with very interesting prices. So this is not long-term renting for us, except -- so of course, in some specific cases, we want to increase this contract term for over 2 years. But most -- in most cases, we want to take that machine again to be able to deliver new machine to clients even more updated technologically speaking, so we can sell this machine to a client at a lower cost. So this machine will sell much more easily than the competitors in low-cost machines. And this is an interesting strategy that has been really successful and makes us more resilient.

Next question from Marin Martins.

In operating terms, is there any cost reduction plan or stack reduction plan?