Sequoia Logística e Transportes S.A. (SEQL3) Earnings Call Transcript & Summary

[Audio Gap] and IRO; and Bruna, Head of RI (sic) [ IR ]. We inform you that this event is being recorded and all participants will be listening through the teleconference. Then we will have the administration of questions and answers where all of the information will be supplied. [Operator Instructions] This will be disseminated through webcast, and you can access it through the address, ri.sequoialog or -- where the presentation will be made available. The presentation of slides will be controlled by the event. It will be made available after the event. The participants on the webcast can register questions to Sequoia, which will be answered. Before we continue, we would like to let you know that any questions can be made during this presentation through activating our operations and you will get information that is available through Sequoia. Consideration -- future considerations are not guarantees of anything, and they involve risks, therefore they depend on circumstances that may or not occur. Investors and analysts should understand that general conditions and conditions of the sectors and other operational factors may affect the future results of Sequoia and will differ from those that are printed out in the statements. Now we will pass the floor to Mr. Armando Marchesan Neto, Founder and CEO, that will start the presentation. Mr. Armando, you have the floor.

Good morning. Thank you so much. Thank you to everyone for their presence and participation. We are going to begin our presentation of results from the second quarter of 2021, and we are going to use as a support presentation and the questions that were made available on our website. So starting out with the Slide 4 of the presentation, we are going to reinforce our position, and we update our participation in all of our business units, starting with the express B2C delivery, which in this period given a vision of the second quarter of 2021 [indiscernible] represented 20 -- 57% of our revenue; and the second business unit where we render services of B2B, especially the delivery of loads, Less-Than-Truckloads, LTL; Field Services and Reverse Logistics as well. They represented 32% of our total revenue in the same period. And lastly, Logistical Services where we render services, mainly with cross-docking and [ reflects ], and this unit represented 11% of our revenue. The solutions are solutions from stop shop for all of our clients. We offer solutions that are flexible and customized. The next slide is the Slide 5, where we demonstrate our entire service portfolio and the integration now between our physical and digital services, mainly connected to the segment of e-commerce and B2C, where we have advanced in the digital services with the creation of our SFx platform, which we already commented on in our results presentations. And Henrique will give us more information on that. Also with the acquisition of Frenet in April of this year and the advance of the integration of Frenet with SFx. And now more recently, since we -- as we disseminated yesterday, there's a creation of a new company with a joint venture with Gigahub for the creation of an extensive platform for pickups and dropoff integrated to our logistical mesh as well besides the B2B services that I already mentioned. So we are strengthening our ecosystem, be it physical and digital, through initiatives developed by our team internally as well as with the development of the strategies through our M&A. And then Slide 6, on the next page, we demonstrate our pipeline -- our current M&A pipeline with continuous evolution of the opportunities. And today, we have on our pipeline, as a whole, a potential of additional net revenue of BRL 4 billion. Of course, the strategy is always important to us when we evaluate these opportunities, expansion. We do expansion in certain areas and the capacity of delivery of those opportunities there. We have 24 companies there in prospection, several with opportunities and a signing that we disseminated yesterday, which I'm going to tell you more about on the next slide, the Slide 7. Here, we explain the creation of the company of pickup and dropoff together with Gigahub. This was born with a presence in more than 1,700 points in Brazil with benefits from the e-commerce sellers and of our clients and also for all of these pickup points and dropoff points, the initial investment of BRL 25 million with participation and 51% of the company. This investment can be expanded up to BRL 36 million in the first 180 days based on the expansion of these points. It's important to highlight the geographic coverage that we have borne in this operation. We have -- we are present in all of the Brazilian states with a lot -- with the coverage in the Northeast. This new company brings an important addition to our ESG matrix with the addition of -- reduction of CO2 to the consolidated collection of resources for dropoff as well as the local use. Here, we're able to offer a robust and agile solution for our clients with the level of service, which we -- with a national presence, which is very relevant, and our capacity for our network coming with our competitive costs with all the network that we have, the volume of our operations B2C as well as our shipping from anywhere on our platform of F -- the SFx. I would like to comment with Henrique, our COO, the participation and the principal highlights -- operational highlights.

Okay. Thank you, Armando. Good morning to everyone. Thank you for participating in this call. We would now like to bring the acquisition of our operational ecosystem. We continue focused on our operational excellence. And we have 83 bases of our own, presence in 4,000 units. I would like to point out that our principal expansion of 283 new municipalities in our base, many of them -- majority of them in the Northeast with capacity in Goiás, more than 480 operational bases, many LT -- and BRL 11 million (sic) [ billion ] of GMV just in this quarter; 480 million (sic) [ 480,000 ] of -- square meters of rented space, 100,000 more than in the last quarter; 7,500 employees, an evolution of more than 1,000 employees -- additional employees since the last quarter; 12,000 drivers. The challenge of expansion always focused on the best -- giving the best experience to our clients. It's going to be mentioning what I said about delivering a new experience. We're certified with the seal. There are very few companies that have this seal, companies which are focused on the best consumer experience, the best management of deliveries and the resolution of problems. Less than 8% of our base receives this certification, and Sequoia due to its high level reached this indicator, one more step that we're taking, which we are building -- looking at Page 11, which brings our data on volume. We grew by -- in quality of orders quarter-over-quarter 2021, 27%, being the main growth of B2B 70% (sic) [ 61% ] and also robust B2C growth of 23%. Evolution of our average ticket was very important. The unitary volume forced by the representation of heavy freight, which has grown by faster than the light freight, and the previous numbers and values higher with the use of capital. When we compare the first quarter of '21 B2C with the second quarter of '21, we see a stability in number of orders. But it's important to mention that when we look at the semester -- compared to the semester of each, we grew by 26% according to the -- we continue to grow above the market during this period. In B2B, the fall small off in ticket has to do with clients offered for -- with the entrance of Plimor into our base of companies, which offer services. Looking at the next slide on Page 12. We here see the synergies that -- and I would like to point out the representativeness that this has reached. Ship from anywhere, which is a solution both for small and medium sellers as well as for stores -- retail stores, working in 20 cities in the entire country in the -- many states. And of the many deliveries done this semester -- this quarter, an increase of 95% compared to the last quarter of last year -- of this year -- first quarter this year. Our first acquisition just in this quarter had an important growth of active sellers of 14 -- and also 14 million qualified sellers, both for the growth of services in the Internet as well as the connection, which we saw at the beginning of this product, will be able to have a very important growth in our base of sellers. And when we commented what happened in terms of growth, freight and GMV within Frenet in the quarter of 2021, multiplied by 10x, a factor of 10, both in freight as well as GMV, which shows that the strategy of investing has been -- has given results. Looking at the next page, Page 13, we can see the investments that we are making, which you have been accompanying in this first quarter. We have 5 sorters already installed of the 22 that we acquired. It's made it possible to improve our efficiency for the transaction of orders in our CDs and our DCs and reduction of our delivery time in almost every location, very significant both in the Center West and in the North where we had an average delivery time of 1 to 2 days. Also introducing our deliveries, we have had a level of representative of 72% in all of Brazil, fruit of our expansion of our network and our presentation and which obviously brings an investment in a network, which gives us a margin to be able to overcome all of the routes and comment -- we mentioned that further as -- when we look at our financial results. Now I'm going to look at the results of the company in this quarter.

Thank you, Bruno. Thank you all. Good morning. Before looking at the statistics -- the financial stats, I want to look at the numbers of the presentation are being based on the old accounting and that the consolidation of these numbers on Page 20 of our Release. On Slide 15 with the results -- financial results of '21, we had solid growth, but the revenue received BRL [indiscernible] million, 76% more year-on-year; same-store sales yield a growth of more than 149%; and our BRL 62.6 million with absolute growth of 42% year-on-year on a base of 17%; and our adjusted of BRL 46.2 million, a margin of 2.5% (sic) [ 12.5% ] and ex-IFRS of 8.2% margin; the BRL 17.7 million with a margin of 4.8%, growth of 5 points. And I would say that our ROIC reached 40.5%. On Page 16, an evolution of our revenue in the second period of '20 [indiscernible] 76% growth compared to the first quarter of 2021; 87% compared to the first quarter to BRL 840 million (sic) [ 824 million ]. This growth because of the increase of the volume of orders and the mix and the average ticket of these orders. Same-store sales is an important strategy. We're growing sustainably over these 2 periods. On Page 17, we see the net profit, which grew at 42% from BRL 44 million to BRL 62.6 million in the second quarter of '21, a margin of 17%. Margins continues to be expressed in relation to the pressure of cost. We had strong cost pressures, especially in our day-to-days from our -- such as steel, plastic and fuel, which went up [ 56% ] in the period. And the IGPM over the recent period, if we normalize the effects of these costs in the gross margin, the margin will be 19.4%, 1 point above 2021 -- the first quarter '21, in line with the second quarter of '20. Looking at the strong expansion in our basis. Naturally -- it has been a natural ramp-up to take up the -- which helps us -- helps our margins and -- to be affected during this ramp-up period. In [ '20 ], absolute growth was 67%. And the margin had the impacts, which I mentioned of inflation. EBITDA -- adjusted EBITDA went from BRL 56 million to BRL 46 million (sic) [ BRL 26.8 million to BRL 46.2 million ]. Margin was maintained at 12.5% and have the observation that the pressure that we've had with the falloff in margins of gross margin due to inputs. We have maintained the same margins due to the dilution of fixed costs and the entrance of synergies in -- of invested companies. And the adjusted EBITDA of 73% kept our margins stable at -- our margins stable. On Slide 18, we see some of the big numbers of the company. 3.5% growth in revenue to BRL 15.4 million, basically with investments in sorters and new technologies, accumulated for the year 26% above what we have done in the 6 months of the previous year -- for 6 months this -- with the bigger investments in sorters in 2021. We reached [ 40.5% ] above the first quarter of '21, and continues to grow according to our strategy. Our debt in the first [indiscernible] of '21 had a small growth due to the payment for the acquired companies, Plimor and Frenet, which caused the cash outlays for addition and to pay down the debts of those companies and -- but the EBITDA has not yet helped to deliver. However, it's very much under control at levels -- very controlled and acceptable levels. On Slide 19, I'm talking about the end of our numbers, talking about the integration of the acquired companies. It's in the final phase of integration. They're at the end of the integration of routes and bases. Prime together will be incorporated into Direcional, and our strategy of always at the end with only one company, one tax number, and we will incorporate Prime to [ Direcional ], and this will continue over the year. Frenet, as he mentioned, has been an integration in the fourth quarter of '21. We've already done the systems integrations, and we're now renting -- operating this technology in our -- incorporating into our network, is being satisfactory. And in the fourth quarter of '21, we will do the rollout of the integrated company. And finally, we've been able to accelerate the integration of the company. We're in an advanced stage of integration, and we should complete that in the fourth quarter of '21. The -- I finished up the financial, and I'm going to pass back to Bruna, Head of IR to talk about ESG and our indicators.

Thank you, Stucchi. Good morning. On Slide 21 of the presentation our ESG actions of the company. From the standpoint of environment, we continue with our program of same-day delivery in Greater Sao Paulo, Rio, Recife and Porto Alegre with the environment -- with the urban mobility in relation to the management of residues -- he was our -- in our Mega DC in Embu more than 26 ton of organic residues, which have been transformed into biogas and biofertilizer. From the point of view of social, we've already tried to have the valuation of diversity, more than 160 active handicapped workers, an increase of 10% in relation to the first semester of 2020. Beyond that, we closed the quarter with 9 trainees, been developed in our program of Talents, which develops young people, university students from the cities in which Sequoia works. And finally, in our Seeds Program, which finds people with low-family incomes of less than one minimum wage. This program has 30 young people being helped by this program. And in the last year, we had 77% of effective -- of hiring of these professionals in the company. From the standpoint of governance, in the quarter, we did the kickoff of our plan of ESG. And we did manage with interviews with all of the directors, stakeholders. We have -- we plan to see the matrix -- the materiality matrix at the end of August. Beyond that, our capacity and data safety program, we continue to invest in our network of data, investing a great deal in training, focused principally on LGPD. From the standpoint of the audit committees, we have defined the annual plan of internal audits for the first quarter of '22. In terms of administration, we are focused on diversity. Today, we have 3 independent members on our Board, all 3 of whom are women. Looking at Slide 22, we bring the principal indicators quarter-over-quarter. From this emission of CO2, we have been able to avoid 80 tons in the second quarter, 134 in the first quarter. And our recycling of cardboard reached 70 tons in the second quarter, compared to [ 30 ] in the first quarter. And from the standpoint of recycling of plastics, in the second half of the year, we had approximately 10 tons; and in the first quarter, 20 tons. Looking at the question of social. We closed the quarter with 1,000 -- 7,500 employees. When we look at the percentage of women among them in the first -- between the first and second quarter, we see a small reduction mainly due to the companies, which we have been acquired, which have a profile of more higher level of men working for them, masculine employees . Today, we have approximately 43 companies -- 43% of employees -- women employees in the company. From the standpoint of leadership, we have reduced the percentage of these numbers of women. We have been able to grow the number of women in leadership. As a commentary, we closed the quarter with 160 handicapped, a growth of 11% in relation to the first quarter of the year. Talking about governance. Today, we have 3 members -- independent members -- 3 women Board members. And finally, from the standpoint of LGPD, we have -- since the beginning of the year, we have invested into -- and I'm going to pass it over to Armando at your service for any questions you might have.

Thank you, Bruna. I would like to thank you all for your participation and the time that all of you have given us here in this call. And we're now going to open up for questions and answers and reinforce that -- reinforce the enthusiasm and the belief that we have in the construction of Sequoia's for this future, investing in technology and our team and creating solutions that are very, very beneficial for our clients. Thank you all. And now we're going to open up for any questions or answers that you might have for us in the Q&A. Thank you.

[Operator Instructions] Our first question comes from Lucas Marquiori of BTG Pactual.

Armando, Bruno, Stucchi, Bruna a few quick questions from my side. And later, I will talk about the more strategic part. As far as the Gigahub, how much this will -- has been strategic with the platform of USF -- SFx, which can eventually leverage this for the collection of small sellers and we can pass this, as you mentioned earlier, or can pulverize even more the access of these small sellers to this type of service for strategic fits? And the second question, we received a lot of questions here since the follow-on to understand a little bit of this performance. And we think that one of the themes that we most referred to is the privatization of the postal service. I know that you're familiar with this, and you've been accompanying this. Can you please comment for us what's the situation in this process? We see the development -- the policies. How do you see this evolving, this solution? And what can we expect and the way of impact on the industry, as we see these things coming at this privatization and the consequent impact on the express delivery market?

Great, Lucas. Thank you for the questions. Starting with your first question, the investment in the creation of this platform of pickup and dropoff together with Gigahub, we believe that it has a strategic not only with Frenet and the rest of the network of the company, which is very complementary. Again, we will be moving to a make more -- to offer more service to our clients and thinking in a solution of services for small- and medium-sized clients. And as we mentioned previously, the acquisition of Frenet and the release of SFx, the focus of Sequoia from the standpoint of -- historical standpoint. So we're thinking more and more about the solution for small and medium players. The platform with the Gigahub with more than all this potential for the pickup was going to give a great deal of capillarity, very important to us, and bring us a number of innovations such as reverse logistics, to electronic commerce and operating good service. We think that there's a strategic source not from the standpoint of ESG, but also in terms of environmental impact, but also in services and the solutions for our clients who has difficulties in sending their products for the pickup and dropoff, can be a good solution for this -- in that sense, all this working through SFx and this integration. So we believe that it's an investment -- relevant investment for us and which will help us in the construction of our ecosystem, integrating all of our services, physical services with our digital services in which we have advanced most recently. So we evaluate here with greater enthusiasm, and we're very happy with the conclusion of that deal. And we see a lot of -- a few conditions to complete, but we're very confident in a quick investment in technology and the initiation of our operations with them. In relation to your second question, the process which is a relevant impact for the mail in the segment of packages. It's a company, which has approximately BRL 8 billion of parcel. It's a relevant player in the market. We've been accompanying them. We looked at some recent developments where there is some objectives -- where there are some objectives published by the government from the standpoint of total sales, consolidated sales through united service and we think that principally related to the process of transition. And we know that the mail has tax immunity different from the rest of the sector. And when we evaluate our payment of taxes, [indiscernible] et cetera, there are still points that need to be cleared up because -- how this transition will happen, and this could be relevant in the capacity for investments for the eventual purchases of the company. We believe that it's a process that should advance. Politically, there's space for it to grow, but there are still technical questions such as the question of tax immunity and the postal monopoly, which would also exist during a period of transition, opening up the market completely. So these are elements, which need to be better evaluated before we can have a position of feeling -- a better feeling. But on our side, Lucas, what we continue to do is investing in our level of service, as we mentioned, in advancing the quality of services, in the technology and in the creation of this new company in partnership with Gigahub, which brings to us the capacity to have more than 1,100 parts, which we could call agencies or shopper stores for the capture of the small clients, who prefer to post these things through a physical store. So we continue to do our job and develop solutions -- complete solutions for the market, anticipating any future movements in the privatization of the mails -- of the postal service.

Our next question comes from Enrico Trotta, Itau BBA.

Two questions -- principal questions. One, talking a little about the volume and also the pass-through of prices in the B2C market. And the second one, I look at the second quarter, it's been flat compared to the first quarter, but the first quarter, in theory, being seasonally a little bit weaker than the second. So I want to understand a little bit the different motives for the volume to not have come a little bit higher in the second quarter. And also looking at the second half of the year, if you could talk a little bit about pass-through of prices. And how will that dynamic be between price and volume since the pass-through of prices is very important during the second half of the year to raise margins and looking at rentals and so forth? So this is the first theme I wanted to approach. But secondly and very quickly in the question of P&L, when we -- other operational revenues, there are certain items which have already brought some volatility to the results, such as the sale of assets -- of fixed assets, the acquiring, which have impacted the EBITDA margin. And I also wanted to talk a little bit about how do you see the volatility on this line going forward, if you consider this as recurring or not. Because taking away this effect on the margin -- the EBITDA margin, I also wanted to understand a little bit about the reasons for that and what has been done in terms of -- in consolidated terms.

Thank you for the question. The first question, I can comment here, and then I'm going to pass it over to Stucchi. In relation to the B2C volume, we have seen some research and news, which shows that we have been following more or less in line with the market, have gaining a little bit of share compared to the first quarter to the second quarter. There are several reasons, the first of which is that in the first quarter, we still saw the restrictions of circulation in commerce higher than in the second quarter. So it was naturally compressed to B2C, which we felt in the first quarter. In the second quarter, we see among some clients, the research that Bruno mentioned during the call, we saw the second quarter had a certain deceleration, which was something that we imagined and commented with everyone that in the rhythm of expansion of e-commerce will not continue at the same level as in previous quarters due to the new profile of the reopening of the physical stores and shopping centers. So we think that in a certain way, the behavior -- the natural behavior looking at the recent past or an accumulated vision, we grew by 3 million orders, which for us is relevant. And so we think that we're in line with the market and accompanying a little bit better the clients. In relation to the question of price, it's a very important question. The impact that we have seen on costs is something that's very much outside of the normal level. We talk about accumulated IGPM of 48%. And then if we stop to imagine that we have 450,000 square meters of rented space, it suggests a monthly rental of BRL 8 million and some per month. It's an impact on the -- and the readjustment of that size half of -- it is a very relevant impact beyond the rate increase in diesel and other costs of mass, plastic, steel and everything that we utilize in our operations. We have seen increases of 200% or 300%. So it's something that's very much out of the ordinary, out of the curve. We didn't expect that this tendency would continue during the next quarters and going years. However, in a certain way, we have to -- we have a commitment with our clients, contracts -- annual contracts or perhaps processes which are sometimes biannual, so we're not able to in place a short-term increases in just one shot. For those contracts, which are -- will be -- have an anniversary in time to renew. And we have been successful in that sense readjusting it, but it depends greatly on the vintage of the contact. And to be able to make these pass-throughs, these are very high levels of repass. So we have to absorb part of this increased costs, to not hurt the chain and our clients, absorbing part of this into our business and seeking in the medium and long term to offset these increases in costs with greater efficiency, better consolidation, more efficiency. And the point is that during this half of the year, as is natural in the first half every year, the investment of new challenges, training our team, preparing for the second half of the year. So the movement has been natural. The second question, I'm going to pass this over to -- for him to mention. In relation to the other, we -- what is not recurring, we have adjusted in our EBITDA. So with our adjusted EBITDA, if we add approximately BRL 10 million in growth of taxes from the reorganization of the tax -- reorganization we've done in Prime, it's a one of refactors to be affected in our adjusted EBITDA -- penalizing my adjusted EBITDA, taking out the EBITDA, this effect. All the other effects are recurring, the reimbursements of the insurance companies in relation to accidents which happened, the part of sale of assets. Sequoia is asset-light, but there's still some where we have part of the fleet, and this fleet is constantly being upgraded in purchasing trailers and so forth. The rest is part of the normal operation of the company. And even the taxes, we have considered that these taxes are also recurring. So we make an adjustment. When you look at the adjustment, I've already taken out everything that is nonrecurring from my adjustment. That has been approximately BRL 10 million. This is nonrecurring, which is from the restructuring we did at Prime, an acquired company, and is [ squared ] it from the adjusted EBITDA. So this nonrecurring tax situation from Prime, all the rest should continue to happen in the next quarters, as has happened in previous semesters as well.

Very good. It was more to understand what were the -- what you considered recurring and nonrecurring. But I see it here that these were gains of -- negotiations of -- taxes was adjusted from our EBITDA.

Our next question comes from Lucas Barbosa from Santander.

Armando, Stucchi, Bruna. Congratulations on the advances in this quarter. I have a few questions. I'm going to start with -- my question is about the pipeline of M&A, which was mentioned in the presentation that you have 7 NDAs -- signed NDAs. Can you talk a little bit about this -- profile of these companies, the size, the timing and if you have any information you can share about that? And then I'll make my second question.

Lucas, thank you for the question and for your participation in this call. Yes, of course, we can comment on that a little bit. We are following in these 7 NDAs under analysis. They follow basically what we have done recently. Part are expansions of what we call traditional logistics, transport companies and -- transport and logistics companies when we look at the increase of our presence in different segments, whether it be less than a full truckload, B2B or light and heavy freight. And so we're looking at different companies in those areas as well as innovations in technology, such as we do with Frenet recently and recently with Gigahub, which was published yesterday. So we have a mix between companies -- traditional companies -- traditional transport companies looking at coverage, geographic density and increasing in our penetration products that we mentioned and as well as other opportunities in technologies, which we continue to look at and to be able to complement the offering of products and services with this integration that we have seen with good eyes and this integration of physical services with all of this network that we created, attending approximately 4,000 municipalities integrating with digital services. So we see this as a potential -- a very interesting potential, and we're going to continue looking at these new opportunities.

Very well. One follow-up on that. Are any of the questions of traditional logistics that you mentioned, are they bigger? Are any of them more advanced? Just to understand how -- if during the second half -- we'll see announcements during the second half of the year of these bigger companies?

I think so, Lucas. Obviously, we have a discipline and comfort in these processes due to the various aspects involved, both B2B due diligence, fiscal labor diligence, which is very important in our segment, as well as questions of valuations and multiples. So there are always these questions to consider. And once it goes into our filter and we have looked at the consistent -- the strategic consistency of the integration, and we're going to deepen our understanding of this during the due diligence process. We see residual questions of due diligence in and of itself and also of these discussions -- these commercial discussions. But I think that what's happening, Lucas, is that we're starting to enter into the second half or in the last quarter of the integrations of these companies that we have acquired. And so we've had good advances in integration -- I'd be more -- and also starting into the final phase of integration of Prime and Direcional. And this has come back to lead our agenda to look at these bigger M&As. So answering your question in a more objective way, I think that we -- starting in the third quarter, we have an agenda which is more freed up in terms of systems, and we have important RP initiatives, important in personal management and workforce planning. And so now we're starting to look at the agenda -- to look at -- to accelerate in these traditional acquisitions, but always respecting our capacity for resolution as well as all the disciplined evaluation and conditions and commercial conditions.

Very well. Armando, that's very clear. If you had asked me one more question about rentals, which you mentioned in your release as far as the IGPM. You have a contractual index, but we've seen several other segments where players have been able to renegotiate the values of these adjustments. How do you see these readjustments if you've been able to negotiate readjustments lower than the IGPM? And how do you see that on the -- on your side? Are you able to adjust -- to negotiate anything better?