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

Good morning, and thank you for waiting. Welcome to the video conference for results discussion for the fourth quarter of 2021. Today, we have Mr. Armando Marchesan Neto with us, Founder and CEO; Bruno Henrique Souza, COO; Fernando Stucchi, CRO and IFO; and Diná Ribeiro Carvalho, Executive Director of People Management and Sustainability. We have informed that this event is being recorded and all participants will be watching the video conference for Sequoia presentation. Then we will start the questions-and-answer session. Questions will take place over the mic by typing asterisk 9 or on the chat to the webcast platform. This event is also being transmitted simultaneously online through webcast. It can also be accessed on the sequoia.log.com.br. The presentation is also available on the site. The slide presentation will be controlled and will be available at the end. So remembering that the participants of the webcast can register questions to Sequoia that will then be answered by the interim Investor Relations. Before consider -- continuing, we would like to clarify that eventual considerations are regarding the perspectives of Sequoia projections and also related to information available to Sequoia. Future considerations are not guarantees. They involve risks, uncertainties and promises because they refer to future events and depend on circumstances that may not happen, that may be -- may affect Sequoia's future results and conduced to results that differ materially in those expressed in future considerations. I would like to now pass the word to Mr. Armando Marchesan Neto.

Hello. Good morning. Thank you to all the participants that are here with us for the Sequoia Logistica results call, results from the fourth quarter of 2021 and the year-end results. Before beginning our operational highlights are on Page 4, for those of you who can follow along with us. I would like to thank all of our collaborators and -- for the great year of 2021 and for the great results, 2021. I want to thank the Executive Board, the leadership and each of the 8,500 collaborators who are part of the Sequoia family. This week is the week of the International Women's Day. So I would like to specifically thank the women. Sequoia has more than 3,000 women as collaborators. So we would like to congratulate them and thank them for this great year and for the great results we've obtained. I would like to now go into the main financial and operational highlights. Highlighting the gross revenue -- a record gross revenue of BRL 1.8 billion, with a robust growth of 53.3% in 2021. Highlighting the growth of B2C channel, where we were able to reach BRL 1.1 billion, which is 80% growth in terms of 2020 and outdoing 3x the market of e-commerce. The company was responsible for transacting and transporting BRL 13 billion in the fourth quarter of 2021 and has reached the mark of BRL 46 billion -- almost BRL 46.5 billion in 2021 in GMV transported and transacted, a very important mark for us. Besides this, we did 53 million requests and orders in 2021, which is an increase of 28.6%. B2C is our division which deals with our e-commerce sector has also broken records. I would like to congratulate the B2C team for reaching this record -- breaking this record in the last quarter 17 million orders delivered outdoing our expectations for e-commerce as well. As we have said before, we had strong growth of Black Friday, 57% in revenue, 81% in orders; Christmas also more than 108% and deliveries and orders demonstrating our capacity for scaling up the operation during seasonal dates and special holidays. We also had great results in gross margin EBITDA. Let's start with gross margin, reaching 20.4% in the fourth quarter, a consistent improvement when compared to the third quarter side-by-side of 2021, even in this very challenging year, not only facing the challenges of inflation, inflationary costs and inputs and fuel and [ GDN ] and also all the challenges we faced, we were able to reach great gross besides Ex IFRS where it is 11.8%, an improvement of 0.8 p.p. and 9.3% with -- our leverage similar to the third quarter of 2021, 1.6x EBITDA and net debt, which is a very healthy level, reflecting the benefits in the technology of our asset-light operation, with an adjusted ROIC of 33.6% for the same period, a very outstanding ROIC in the logistics and transportation sector. We have also been moving along strongly with our ESG agenda, developing leadership projects besides defining the matrix and the 4 pillars of actions, Reducing Emissions, Mobility, Community and the Drivers. And our ambition is that by 2030, we will be net neutral in carbon emissions, which is an important step given the nature of our operations. Besides this, as has been shared at the end of last year, we renewed our Board aligned with the best governance practices. And today of the 7 counselors representing the company, we have 6 independent counselors and 2 women. In the next page, we -- here on Page 5 now. We show our integrated ecosystem for digital and physical services that is set up to support the logistics operation in the country. Sequoia reached 60% of its revenue coming from the B2C sector. The B2C sector supported by digital tools that we will show up ahead already represents BRL 250 million of our profit from Drops. Our B2B operation has reached 30% of the operations of last year's revenue and our logistics operation reaching 10% of our business. Slide 6, you'll see our strategic M&A position being highlighted. We have a very robust pipeline with great opportunities that we're well selected, 23 total. We had an increase in the amount of MOUs signed going from 1 MOU signed in the last quarter to 2 now. And we continue to look at acquisitions that make sense strategically and adhere to our portfolio of physical and digital services, and we continue seeing a very promising market in terms of M&A. I would like to now ask Bruno Henrique, our COO, to go over some of the main operational highlights. Please Bruno.

Good morning to everyone. In Slide 8, we bring the updates of our operational ecosystem. Restrengthening our purpose of connecting logistics and reaching all of Brazil were already in 71% -- covering 71% of GDP, more than 23,000 different collection points. We have 75% of our own points and 4,300-and-something municipalities reaching almost 100% of GDP itself. restrengthening our strategy of interiorization. Our deliveries were mainly in the interior 75% with 100% growth quarter-by-quarter. We reached 423 operational bases, 53 million deliveries made, as Armando mentioned, against 41 million in the year of 2020. BRL 13 billion in GMV in the fourth quarter -- 13% increase over last year's results reached 507,000 square meters and 14,000 registered partner drivers -- or collaborators. So in our next slide, you'll see some more details of some of our increase in orders. A 51% increase in orders quarter-by-quarter, that's very robust growth, pulled by the B2C, which grows 55% and B2B growing at 19% quarter-by-quarter. Annual comparisons B2B and B2C growth is close to 30%. We reached a record, so level of requests was almost 7 million requests during this quarter. Next, going to Slide 10. Here you'll see detailing of information about Black Friday and Christmas. Armando already mentioned an increase of 57% revenue, 81% in the amount of orders. And in Christmas, we've almost -- we more than doubled our revenue for Christmas and advanced 135% orders. So that's a very expressive growth. Moving on to Slide 11. It's also a great satisfaction to share with you our digital solutions, so very well connected. Frenet, which is our shipping marketplace, we acquired last year already reaching BRL 8 million in revenue in 2021 of CAGR, which is very important of 159% in 2 years. We have also continued growing our base consistently and shipping also high percentage of growth in 2 years, showing that this is a sustainable growth. The goal is to be the market leader through e-commerce partnership. Looking at international benchmarking as -- and it was Unicorns that we see as our inspiration with BRL 1 billion evaluation, already reached BRL 50 million revenue in last year. Drops, which is our network also founded last year as the idea is to scale the level of points of lot. The CAGR of 52%, an increase of numbers to be dropped and the main proposal is to be the leader in this market. So we will use against the 10% more developed markets and this is a sector with very potential relevance for revenue, reaching about BRL 3 billion in shipping in 2026. Lincros our last acquisition. It's a SaaS routing, control and shipping. We reached CAGR 47%, with already 73,000 vehicles being monitored. And the main proposal here is to be the leading logistics and technology solution. Benchmark. For benchmarking, we're also inspired the $1 billion Unicorn of about last year. In the next slide, you'll see the size and potential of this ecosystem. We have already reached BRL 215 million in revenue of our Digital Solutions in 2021, a growth of 9x when compared to 2020 and the connectivity that they can all offer starting with [ Frenetic ] which is a shipping marketplace with 32,000 sells active generating in GFV and are connecting to our collection delivery service 4,000-something municipalities. So with the Drop-off solution as well as the Reverse solution, we also provide a very integrated solution for SMBs. With the shipping marketplace, SFX of Drops on collection branch and with the pickup and drop-off and reverse logistics options. Also in Drops or the potential of new services that are already being developed like Nobody home, which is a service that avoids nondelivery Kirana Model, a delivery service to ensure that deliveries are made with e Dark Stores with more than 3,000 points that should be developed by 2023. And Lincros which comes to connect with routing platforms and tracking requests, as I already said, these are sites for realization with more than 2 million different routes being operated. Here in the next slide, I'll pass the word to Stucchi to give us our financial results.

Thank you, Bruno. Good morning to everyone that's with us. Before getting into the financials, I would like to remind you that the financial numbers being shared here are all according to the last accounting model, and these numbers can also be found on our results release on Page 18. Now if we go to Page 14 with highlights for the fourth quarter of 2021, Sequoia reached BRL 539 million, increase of 32% year-over-year. Our EX IFRS results were displayed on the slide with a margin of 20.4%. Our adjusted EBITDA was at BRL 67.7 million, an increase of 34% year-over-year and a margin of 15%. Adjusted EBITDA Ex IFRS, an increase of 39% year-over-year with a margin of 11.8%. Our net adjusted revenue, the margin of 4.6% and our ROIC went was 34%. Next page, Page 15, I already told you a little bit about the way we grew revenue, an increase important highlight to B2C, which grew 80% more than 3x the e-commerce market. During the quarter, the company grew 32% going from BRL 410 million to BRL 509 million in the quarter of -- last quarter 2021. We organically grew. It's very important to mention that aligned with our growth the last few years of about 20%, 18% of organic growth in that year and in that quarter, 16%. To say that organic growth for B2B specifically is affected during the next 12 months harvest when we count from the third quarter of this year by the churn that we look at. So -- and what we've did last quarter or so. It naturally evolved. So if we look at the organic growth of B2B in the last quarter, less than 23% and this year with the evolution this quarter, it goes to less. So we have already evolved 7 percentage points in B2B. This is a trend that will probably remain over the next quarters as well. Going to Page 16, our net adjusted profit was adjusted at 11%, went from BRL 88 million to BRL 92 million, and you also see a consistent evolution of our gross margin. So this is very difficult for second quarter because of the increase in pricing and inflation, and the margin also increased substantially in the last quarter. So we grew -- we increased 2 percentage margin from the second -- from the second to third. And this is the fruit of our growth of our work investing in technology, improving the optimization of processes and the way our prices are passed on to clients as well as the synergies of invested companies. The trend is that this margin will stabilize between 20% and 21% in the next few years. Our EBITDA also evolved very importantly. So we had a drop when looking at the gross margin of 20.21%, basically due to macroeconomic factors, and we also had an increase of EBITDA of 0.21%, which shows the work we've done in decreasing fixed costs and synergies and the company then continues to evolve very well, with an EBITDA of 2021 of 9.2% with a gross evolution of 7% and the last quarter, EBITDA increased reaching 11.8%. We'll probably continue to evolve this margin over the next few years. And Slide 17, we show that we continue to invest for this percentage of our -- in CapEx software in 2021, you can see the numbers on the board. And our asset-light model continues to have a very balanced net debt aligned with the third quarter. We also paid for Lincros in the fourth quarter. If we discounted this payment, then our level of leverage would be the same or better as the last quarter. I think another important point to make for this quarter is how we've increased -- well, when we imagine 2022 with a lot of market instability and opportunities for M&A, we also increased debt. But the third quarter of 2021 payment of the main in 2022 was at 38% debt or BRL 125 million. And with this, we have only BRL 10 million for 2022, representing 3% of the total payment of debt. Another important point is even in this difficult market we've been able to reduce . And our ROIC continues above market of 34%. To close financials, we finished integration -- integrating the recently -- recent acquisitions in the year of 2021 with great results above the expected -- above what was approved in our business plan at the Board level. These are the 4 main pillars of synergies, BRL 39 million in captures synergies, integrating structures using routes of SG&A and secure contracts an important increment if we look at the SG&A of the positions or acquisitions after 12 months of the company integrated to Sequoia. Now I will pass over to Diná, our Executive Director of Sustainability.

Thank you, Stucchi. Good morning to all. I'm going to talk a little bit about our ESG agenda, which I'm going to mention at the beginning of the presentation. I'm on Slide #20. Sequoia built a solid way forward in our ESG agenda, depending on a structured plan for leadership in the logistics ESG sector. Some important stages were crucial in defining our strategic pillars. And I would like to mention to you. I think everything came from a matrix of material as hearing our stakeholders. So we reached 4 different principles and pillars; the first, emissions and residues and our ambition until 2030 was to reach carbon neutrality. We know the impact and the challenges and this pillar mobility favoring sustainable mobility in the priority cities and developing human resources in our ecosystem as well as ensuring safety and partnership with our drivers and collaborators. In Slide #21, you can see some of the initiatives that we have already -- that are from this plan and were executed in the fourth quarter of 2021. The first is launching Drops, which ends up helping us with reducing reduction and improving urban mobility. These are shorter routes using alternative options, as mentioned by Bruno 624 and the expectation is to reach 3,500 by 2023. And then when we look at the environmental aspect, the implementation of a unified platform for residue control and based on this, we can have structured action. The results of the Despoluir Program with the environmentally assessed vehicles in partnership with CNT now -- about drivers actions to raise awareness for more than 400 drivers and impacted partners. And looking at the community transport of 50 tonnes of food types and personal hygiene items to 3,000 families in the [ Bahia ] states and Sao Paulo. And we've also been able to help to develop our use in the communities, we are included, and so we're at the fifth stage of the seeds program with the youth training program. Thank you. With that, I pass the word back to Armando.

Let's now open to questions and answers from the audience. So we get last time. Please.

[Operator Instructions] Our first question comes from [ Ms. Fernanda Hesser ]

Hi, Can you hear me?

[ Fernanda ] we heard you. I think you now closed your microphone, [ Fernanda ]. [Operator Instructions]

Can you hear me?

Yes, Fernanda.

Sorry, I think I had some trouble with my mic here. Congratulations. I have 2 questions here on my end. The first is about the margin evolution. We saw you delivering a very good margin this year with improvements quarter by quarter. I would like to ask you about the scenario you can see for 2022. We see an increase in the price of fuel. And as you already mentioned, if you've had any news of deacceleration. So I wanted to hear how you see the impacts and I wanted to go into M&A. If you can go into details about what you're seeing in terms of diligence and the size of what you're looking at? And if you can also give us some expectations time when we'll probably see new M&As?

Thank you, Fernando. Armando here speaking. Thanks for that question. I think the first question is very important. So the scenario has changed very quickly once again with the war of Ukraine and Russia, I think that Sequoia in regards to last year's already has a strategy that's ready for readjusting prices because of this more complex scenario, which was a very atypical case concentrated in the first 6 months, with an increase in the price of inputs, tires, et cetera. We have a strategy and a calendar, which is defined of our commercial sales team for adjusting prices. This is something which has already been delivered now given the anticipation of -- the market situation, anticipating some of the negotiations of our main clients for readjusting. I think another detail Fernando, is that different from last year, the industry -- regarding the industry, there wasn't a consensus about the increase of prices. I think all of the company's retail as well as industry and the logistics transport industry have already anticipated these impacts and also the increase that we saw accumulated in the last 12 months. So most of the companies are already ready and put this -- included this in their respective budgets. And the market as a whole, the rates of transportation and [ NCPF ] rates have published in February, an increase of 17.5%, which means that the industry as a whole will move to readjust prices because this level of petrol would demand a rearrangement in the chain as a whole. So we are expecting a more fluid process now, given that the market as a whole has prepared and is moving towards this direction. And this is how we will conduct this in the company. Except for the seasonality in the first quarter, we expecting neutrality this year, offsetting the effects of an increase in fuel, of course, respecting the seasonal nature of this quarter where we have the quarter with lowest volumetrics and operations. So about M&A that you asked your question on M&A, I think the most important point, Fernanda, is to say that we are very adherent to our strategy, which has worked in the last 1.5 years post IPO, which is to continue looking at opportunities that makes sense to the company basically aiming for 2 specific verticals: one, an increase in our scale and density, gaining route density and improving services costs and the cost for our clients. So scale is a very important vector for the company. We're building scale with the revenue of BRL 1.8 billion, more than 17,000 requests in the last quarter, 52,000 during the year. So we've been able to scale up over time. And very successfully we're going to continue aiming towards that scale and besides scaling, Fernanda, I think you can see in this frame 6 of our presentation, you'll see the [ Logitech ]. So we're going to continue faithful to our strategies. And about the 2 MOUs you asked about. One of them is already very advanced in process, moving towards the end of due diligence and the other one is in very initial stages. So as we've discussed in other occasions, due diligence, usually varies from 90 to 120 days for a satisfactory conclusion and performance of the transaction, if successful, during this due diligence. So this is what we're aiming for, and we continue to be very loyal to our plan and to building our ecosystem, which today already transacts BRL 46 billion in GMV.

Our next question comes from Mr. Alexandre Kogake. Please Mr. Alexandre your microphone is open. Mr. Alexandre you can proceed with your question. Alexandre we can hear you.

Well, my first question is about revenue and acquisitions. If we see the year of 2021, there is a revenue of BRL 412 million. If we add this to the revenue of the acquisitions, it would make up for more than this. I understand that there were acquisitions which were carried out throughout the year, so part of them can be justified because of this. Part of them already mentioned. But my question is to understand if this BRL 412 million is, would already be the starting point for the revenue of acquisitions looking -- moving forward? Or if you still see opportunities for cross-selling in the future?

[indiscernible], thank you for that question. That's a great question. So I think that this movement that you commented about the churn has an influence on this number, and that's why the number is exactly what you mentioned. Another important factor, which is always more important to -- more difficult to adjust the numbers because cross-selling and the revenue of these companies happens very relevantly. So a lot of the revenue that was from B2C went to Sequoia and from there to Plimor so and we look at the business always in a consolidated way. But it's always more difficult as business evolves. So we look at singular revenue between both because it's already difficult to separate as it's one route. Acquisitions, BRL 412 million is not necessarily the sum of all of the revenue because some of it comes from Sequoia. Some of the churn -- so some of that churn happened. So it's always more difficult to look at this mix the way you are looking at it initially. So it may be a good starting point, but we need to ponder this with the cross-selling that happened migration and churn specifically for B2B and B2C.

Now maybe shifting the question to Bruno. You had 424 in the fourth quarter of 2021. Now this is recent, but are there any stats about how the individual performance of each of these has gone or the amount of deliveries and removals that are in a volume for those that are offer for Drops that has been interesting. So a little bit of the economics of this business.

Alexandre, we are at the beginning of our operations. I think that for our initial strategy, we're going to capture these numbers and then go to the market delivering 2 big services, seller drop-off and reverse. Adherence in the market has been very great. And in the stage we're at, basically, we're at negotiation and integration of -- for clients. This should take about 60 days, so we can start generating operational volume and be able to bring the metrics you asked about regarding these points.

Great. If you could just maybe -- if I can just allow me a follow-up question. I want to understand if there's any type of cost that will be dilutive in the future.

Are you talking about...

Yes. Yes, exactly.