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

Good morning to everyone. Welcome to our teleconference of results of the first quarter of 2022. I would like to go through Slide #4 of our presentation, the principal financial stats and operational numbers of the quarter. Starting with the GMV transported of BRL 11.4 billion (sic) [ BRL 11.3 billion ], an increase of 16.6% in relation to the previous year. We had 19.6 million orders, an increase of 81.3% and with a historic number in the B2C area of 18.1 million orders, an increase of 87.7%. With that, our gross revenue reached BRL 538 million, a growth of 39%, a highlight for the strong B2C growth, which reached BRL 360 million in gross revenue, an increase of 57% compared to the revenue of the recent quarter. We had an EBITDA of BRL 38 million, a growth of 83%, reaching 8.6%, an improvement of 2.2 percentage points. Our adjusted EBITDA was BRL 46.7 million, growth of 52.4%, with adjusted EBITDA of 10.4%, an improvement of 1 percentage points. We closed with a level of debt to EBITDA of 1.5x in the first quarter '22, a healthy level, and reflects our asset-light business strategy. And also with ROIC in the same period of 37.3% in the period, representing a growth of 2.9x -- 2.9% (sic) [ 2.9 percentage points ] in this period. We also realized our AGO, our ordinary assembly for '22, which reelected the Board of Directors, maintaining the 7 members, 6 of whom are independent members, along with the installation of the Fiscal Council, which will take office in May of 2022. Going to the next slide, Slide #5. Here, we reinforce our position in the integrated ecosystem of both digital and physical services, where we are constantly evolving this ecosystem and offering new services to our clients. As you can see on the presentation, in terms of services, B2C represented 62% of the revenue in this period, with B2B 28% and logistics 10%. We continue to develop all of the integration in our ecosystem, integrating the B2C into the Frenet platform, a platform which grows and has a tremendous adhesion of sellers in the e-commerce market, improving the coverage and the service SFx, which attends to all of the operations of B2C in terms of collection, pickup and last -- first mile and collection from service and distribution, and our drops, which also support us in the distribution of our orders and briefly, with the reverse logistics. In B2B, the services aimed at the express air market is usually broken into small packets. And with the new Lincros platform, the company with which we invested at the end of last year, which will also give us a great deal of support in the technology of this area, along with all the fulfillment servicing in cross-docking. We are a company provider of logistics services prepared with technology, and we continue to advance in the construction of our ecosystem. On the next slide, Slide #6, we reinforce our position and our M&A strategy. We continue with our pipeline, a robust pipeline, with 25 selected opportunities. Each one of them, opportunities in the phase at different levels of our pipeline. But our model is a model which is quite disciplined for acquisitions, where the strategy is the priority when we identify an opportunity. We continue with 2 MOUs signed, in the process of evaluation and due diligence and commercial conversations to acquire these processes, and we continue to evaluate new opportunities, which have made up our pipeline -- our M&A pipeline.

As you know, 79 our own bases, we are at 4,300 cities, 94% of the GDP. We continue with a strong strategy of interiorization with 68% of our deliveries in interior, 34x more deliveries year-on-year, 447 operational bases, 62 million orders delivered in this year, almost 50 billion transported in the last 12 months, 481,000 (sic) 481 million square meters of rented space, 8,700 employees and 13,428 registered partner drivers. Going on to Page 9, the updating of our operational data. As we mentioned, we have a very important record in orders with the incorporation of SFx. In B2C, it was 88%, an 88% increase quarter-on-quarter; in the B2B, 26% quarter-on-quarter, and a total number of orders 81% higher quarter-on-quarter. Pointing out the average ticket of the B2C, they remain stable compared to the last quarter and with a small falloff in relation to the first quarter of '21, basically, due to the change in mix and our bigger concentration in lighter deliveries. On Page 10, we see here the system, the integrated system, showing that all that we have been able to do with the acquisitions that we've done in our ecosystem. Starting with the beginning of the quote for the seller through Frenet, we have more than 32,000 (sic) [ 32 million ] sellers.

Good morning to everyone. Now I'm looking at the financial data. I would like to inform that starting in '22, the company will no longer adjust its gross profit for the IFRS effect. The company will also, from the IR side, the impacts of IFRS 16 in the results and any other adjustments can be encountered in our release, in our results release. Looking at #12 -- Slide 12, the financial results. Our gross revenue reached BRL 538 million with a growth of 39% year-on-year. Gross revenue -- gross profit of BRL 81 million, a growth of 42% and a margin of 18.1%. Our EBITDA was BRL 38 million, a growth year-on-year of 83%, a margin of 8.6% with growth of 2.2% (sic) [ 2.2 percentage points ] year-on-year. The adjusted EBITDA of BRL 46.7 million, with growth of 52% year-on-year and a margin of 10.4%. Our adjusted net income was negative BRL 4.6 million, and our ROIC reached 37.3%. A growth -- a year-on-year growth of 2.9% (sic) [ 2.9 percentage points ]. The next slide on 13, look at the evolution of the company goes from BRL 387 million in the first semester to BRL 530 million in the second semester of '22. And the year to -- last 12 months, our growth was 43%. Here, it's worth mentioning that the company in '22 reached the level of BRL 2 billion in gross revenue. On the left -- on the right-hand side, the evolution of our revenue first quarter '21 versus '22. We had a growth -- an important growth of 28%. So the 29% that we grew, 28% came from organic growth and 11% from inorganic growth. The organic growth in B2C continues to push our growth, the growth of 51%. And B2B continues with its cycle -- a 12-month cycle, a recovery. We had a forced churn in the third quarter of '21, and had a negative impact over the next 12 months. This is the next semester, which we will start to offer benefits in the B2B. Looking at Slide #14, our net profit and margin reached 18.1%, a growth of 42% in the gross profit year-on-year. The important thing in this chart is for us to look at the seasonality of this indicator. So in 2021 and '22, the evolution of this number over the years, we have a consistent growth going from 17.7% to 18.1% in 2022. The company continues to improve its efficiency to be able to continue bringing the best margins over the years and looking at also taking into account the seasonality. It was also greatly impacted by B2B and logistics. And naturally, these 2 carry a higher fixed cost and are more affected by seasonality. On the other hand, the growth of our EBITDA and our EBITDA margin, we had a growth of 83% in the EBITDA going from BRL 38 million -- from BRL 20.9 million to BRL 38.4 million, and 8.6%. From '20 to '22, we see that growth even more accentuated with the dilution of fixed costs and bringing synergies from the invested companies has had this effect. On Slide 15, we point out our ROIC. As Armando mentioned, at the beginning, the asset-light model helps the company to a level always above its comparable, both in and outside of Brazil. And we have 37.3%, 2.9% (sic) [ 2.9 percentage points ] above the first quarter of '21. Our debt versus -- reached the same level, maintained the same level of 1.5x, slightly below -- one tenth of 1% lower than at the last quarter of '21. This is within out limit of 3x to 3.5x per year. That's the financial point highlights, and I'm going to pass it now over to Diná Carvalho, Executive Director of Sustainability and People.

Thank you, Stucchi. Thank you all. I'd like to share with you the agenda of ESG. Speaking a little bit about the priorities of Sequoia. We have built a very strong way forward with a structured plan of sustainability in the logistics sector. Our journey counts on the social crucial impacts to define our 4 pillars in the sector, and also benchmark and diagnosis of priorities and materiality matrix. And then the first is emissions and residues, waste. As soon as pursuing carbon neutrality by 2030, the sustainable mobility in the city -- in the priority cities, in the community area, we have several developments in our ecosystem and for our partners and drivers to get into the safety development and fair work. Looking at Slide 18, I would like to share with you the first step of the commitment assumed by the company to neutralize our carbon use, we acquired electric vehicle. The provision of this is that in the next months, starting in the city of Sao Paulo. On Slide #19, we are happy with the renewal of our Board members. Remembering that this composition will strengthen us for the challenges of growth that we foresee going forward. So we have here a high level of governance. 6 of the 7 members are independent members. It's a senior team with experience in different sectors, whether it be business, in HR, ESG, technology and financing strategy. Thank you all, and I'm going to pass it back over to Armando for his final comments.

Thank you, Diná. I would like to thank you all who have participated in the teleconference -- in this earnings call and pass the word over to our operator so that we can initiate the Q&A. Thank you very much. Thank you all very much, and we continue here at your service for any additional information.

[Operator Instructions] Our first question is from Lucas Marquiori, BTG Pactual.

Just 2 points I wanted to discuss with you in the B2C, which is the biggest highlight. When we spoke in other occasions, you talked about the challenges of operating with these small clients and how this changed you from the standpoint of capacity, volume and so forth over time. I wanted to understand what you have done to adjust your operation seeing that the margin in the first quarter was a surprise, a positive surprise, and show that you have been able to address well this challenge, this operational challenge. I think it would be very good if you could talk a little bit about what you've done with this operation because there's still a lot of questions about the impact of this, and want to know what you're doing to maintain your margins at these levels? And the second question, also in the B2C, is a high volume in the first quarter. We expected a falloff in revenue at the end of the quarter with the effect of the hangover at the end of the year. And I want to understand how you think the rest of the year will be since the first quarter will still have filled the effects of seasonality, and what can we expect in the way of performance and volume in the second quarter in terms of volume in the B2C and light deliveries, the B2C deliveries? Those are my questions.

Lucas, thank you for the question. It's Bruno speaking. As you mentioned, the adjustments that we made, it basically went through the other -- that we've done over the year, this investment in training and software and all of the operational basis being connected. And the fruits of these investments is that we have been able to have a very quick increase in capacity with a very serious operational adjustment. Very fast to be able to absorb the additional capacity, which happened since the first quarter for several reasons. One, both the mail -- the post office accompanying our velocity, this generated for us additional volume, which is seen in our results. So I think that the construction that we have been doing, the investments we have been doing since 2020 has made it possible for us going forward to capture a higher volume. And originally, we thought that with this Asian player, but we also done for quite a while. We've been asking you to understand the SFx. A lot of this effect is coming -- today, we're the company that has the most collection points in the B2C world. This makes it possible for us to capture this volume before anybody else does. These are the levers that have helped us to translate into the capacity, volume and margin. As far as your second question, let me connect a little bit with the first one. We believe that the volume this year has a positive tendency. But the first quarter, naturally, we had this effect of absorbing more volume, principally since one of the players is growing quite a bit with greater efficiency, which is the post office, but we don't think that -- we don't think that will continue for too long. But we're going to still have relevant growth. But one of the first, certainly, but the absorption of additional volume will not behave exactly as it did over the year. But the general perspective of volume continuous positive.

Our second question is from the web, Lucas Barbosa of Santander.

Congratulations on your results. I would like to hear a little bit about your e-commerce plays of the Asian players. If you can give us a little color about what they have in the way of their planning. And is there an indication of increased volume, which will be directed to Sequoia in the second quarter of 2022 and third quarter of '22?

Lucas, this is Armando speaking. Thank you for the question. I think that, as you know, we can't tell you exactly the numbers client by client, but we're very enthusiastic about the e-commerce area, several companies, not just the Asian companies, but also the others have been showing a great deal of resilience and growth in the sector, even though the economy is getting worse in terms of inflation, purchasing power of the consumer and the family is going down, we still see that the penetration of e-commerce has shown itself to be resilient. So there are big players in these marketplaces, which we extend, especially the Asian players who have given us a growth. And this means that we are able to -- it benefits us. What we understand, as Bruno explained in the previous question with Marquiori that the behavior -- the stronger behavior in this first quarter. The second quarter, we should have some accommodation, but then the growth should come back in the second half of the year because the second half has a stronger seasonality, so we expect to continue growing. On the other hand implementation, which for the maintenance of this volume and the growth of the company. I think that beyond that, we see in the B2C world that we still see a segment of B2B still with a certain amount of retraction, especially high value-added products we see the impact of inflation. Part of the impact of the supply chain with interruptions in the supply chain, we're seeing going through one more right now with the China, which is related to the COVID and the lockdown at China. So all of this should contribute to -- for numbers -- B2B numbers even smaller, but our rate of recovery of new contracts and current -- renewal of current contracts makes it has an effect in the B2B issues. So in general, we understand that the third quarter, we're able to capture the seasonality of the period. And with the capacity that Bruno mentioned, that we will be able to inaugurate more one more app in our mega city, mega distribution center. We will double our operating capacity, preparing for the end of the year and for Black Friday. So all of this will contribute to the maintenance of our rhythm of growth. Even though we recognize the challenge that the macroeconomic challenge that the company is -- that the country is going through with high inflation, the readjustment of fuel prices, the labor contracts, which will be double-digit increases, these are challenges which the industry as a whole will have to face up -- continue to face, and this will impact in a way on the economy. So we're a derivative of retailing and e-commerce, so the certain specific segments of higher value added, we should see a smaller rate of growth in those areas. However, in the vision for long and mid to long term, depending on technology and making investments in operating capacity and the number of sorters that we have in the interior of the country and in our mega DCs gives a good operational capacity beyond the technology for integration, as we mentioned, in reference to our log techs, with Frenet, accelerating the growth of Lincros technology, we're going to support this. And also the beginning of the operation, this will all contribute so that our virtuous cycle of growth can conquer a higher base.

Our next question is from Joshua Milberg from Morgan Stanley.

Congrats on the results. My question is in relation to the M&A expenses. Looking at this line, we see a reduction of 30% in the absolute value, close to BRL 8 million, continues in the ballpark of what it was in the first quarter of 2021, which was the moment in which there was an intense process of integration of M&As of traditional logistics operator. So I would like to understand a little more granularity about why it continues at this level, how you've been able to continue to maintain this level to understand this variation year-on-year in the scenario of the less intensive processes of M&As and logistics -- traditional logistics operators? It would be very interesting to hear from you about that.