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

[Operator Instructions] This event is also being transmitted simultaneously via Internet by webcast. It can be accessed at the address ri.sequoialog.com.br, where it's available, the respective presentation is available. The selection of slides will be controlled by you. The replay of this event will be available right after the closing of this call. We remember that the participants of this webcast can register via website. Questions for Sequoia, which will be answered at the end of the teleconference by the IR area. Before continuing, we would like to clarify that eventual declarations that may be made during this telecom relative to perspective -- business perspectives of Sequoia, our projections, operating goals and financial goals constitute beliefs and premises that the management of the company as well as information currently available to Sequoia. Future considerations are not a guarantee of performance and involve risks, uncertainties and premises as they all refer to future events and therefore, depend on circumstances, which may or may not occur. Investors and analysts should understand that general conditions, sectoral conditions and other operational factors can affect the results -- the future results of Sequoia and may lead to results that are materially different than those expressed in future conditions, depending on future conditions. We would like to now pass the microphone over to Armando Marchesan Neto, Founder and CEO, who will begin the presentation. Sir, Armando, please go ahead.

Good morning to everyone. It's a great pleasure that we announced today the -- our results referring to the third quarter of 2022. I will initiate the presentation with Slide #4, where we will mention the operating results for the third quarter of 2022 and compare it to the previous year. The number of orders reached BRL 20.8 million, an increase of 65.1% with highlighting the strong results of the B2C area of 19.2 million orders an increase of 72% in relation to the previous year. All of this growth has organic origin. The gross revenue reached BRL 538 million with organic growth of 20.7% and highlighting the performance of the B2C growth, which represented BRL 343 million, an organic increase of 30.7%. We wanted to mention also that this comes from a strong performance in the Light goods sector, where we conquered new contact -- new clients and also grew in our base of current clients. We also mentioned the cooling off of the higher-value products and the B2C -- heavy B2C and B2B. This effect -- affected the GMV transport, which reached BRL 10.5 billion, a decrease of 17.9%. We have observed lower demand in the higher value-added products since last quarter, and we've seen a slowing of this -- in this quarter -- in the third quarter. This is our perception, and it's in line with the data published by the IBGE, pointing to the cooling off of the higher value-added market with a releasing a lower -- a reduction of 21% in relation to the first quarter. Going to our EBITDA, we reached BRL 67.4 million growing in the quarter, an increase of 19.8% and the EBITDA margin reached 14.9% in line with the previous year. Our leverage ratio in relation to EBITDA, net debt, continued a healthy level of 1.7x, reflecting the benefits of our asset-light strategy with a ROIC of 44.3%. Going now to slide -- the next slide, Slide 5. On this image we show in our positioning in the logistics market with a complete offering of services that are made possible by technology. In terms of our gross revenue, the B2C segment increased its participation and represented 66%, followed by the B2B of 26%, followed by logistics services with 8%. Our focus -- our strategic focus continues to focus on our physical and digital services where we understand that there are great opportunities for growth and consolidation of our company's leadership or in the long term. In the B2C segment, we have consolidated our routes with existing routes, especially in the light items, an increase over the last 12 months. We advanced in the third quarter in the integration between the physical and by the Frenet and SFx, our technology for multiple origin collections. Integrating with Frenet becoming an option for small and medium companies who need a logistical solution, which is more efficient. In B2B, we have a complete portfolio of services, including Express Service, Field Service and Reverse Logistics, our focus on the Less-Than-Truckload or fractured or semi-Full-Trucks is concentrated on the B2C. our focus is more and more integrated in the B2C and B2B segments, taking advantage of the structure and routes that we already have in operation, consolidating the volume of the 2 segments as well as sharing the automation and technology investments. Beyond the adjustments in our network of heavy and B2B deliveries, we're working on the integration of services with important markets of unification of units over the next 60 days and also the launch of new technologies such as our new traffic control tower, which will unify 100% of all of our routed and transfers in all segments. I would like to now pass it over to Page 6, Slide 6, and invite our COO, Bruno Henrique, to pass through the principal highlights -- operating highlights of the period. Bruno?

Thank you, Armando. Good morning, everyone. Going to Page 7. We have -- we will break -- a breakdown of our orders. As Armando mentioned, once again, we have delivered a strong market, especially in the B2C segment. The number of orders in the B2C area increased by 72% compared to the previous year, reaching BRL 19.2 million in the third quarter of '22. Comparing the historic volume that we reached in the second quarter of this year, the average ticket was 17.9%, a lowering of 24% compared to the previous years, respectively. The reduction of the ticket -- this average ticket is related to the change in the mix of our products. The strong growth of light deliveries up to 3 kilos which has the lowest average ticket and the lower growth of higher ticket items with higher value-added. The macroeconomic scenario is more challenging and the increase in the interest rates and the reduction of access to credit by consumers has reduced the demand of the market for higher value-added products and which has changed the mix, as you see in our numbers. In the B2B segment, we've had growth of 12% in volume. The average ticket reached BRL 89.9, a reduction of 4% and 6% in relation to the year and quarter -- previous year and quarter, respectively. In the other segments, we reached 28 million orders with strong growth compared to the previous year. Our business model, which is a complete model for clients and different clients has the increased number of orders that we have captured in the market, especially in the segment of light B2C, where we have increased our presence in the same clients as well as conquering new clients. To show this more clearly, on the next slide, #8, we bring the highlights of our operational ecosystem. At the top of the slide, I would like to show our complete solution, our modular solutions for the attendants, for the service of our clients in the segments in which we operate. In the first mile, we have through these physical drops -- drop-off points with a very high range, about 400,000 collected -- packages collected per day and 22,000 points in 644 cities. Going to the 17 distribution centers and 463 hubs, we sort more than 300,000 packages per day, and we have continually increased this capacity -- processing capacity by delivery of new technology and the implementation of more sorters. And finally, we have a coverage of 94% of the GDP for the last mile deliveries. 4,260 cities with a daily volume of 300,000 packages. This high volume of 400,000, an increase of 71% compared to the previous year, together with our increased efficiency has transformed our operations. The automation of our distribution centers, the implementation of new sorters as well as several projects for the system has impacted in a relevant way. On the left-hand side, we see the number of orders per employee almost doubled this year, going from 1,900 to 3,400 per quarter. On the right-hand side, we see on a base of 100, a reduction of 17% that we've had in our unit freight costs in the B2C and light-freight segments. Looking at Slide #9, I'm going to pass it over to Stucchi who will give you our financial results.

Thank you, Bruno. Good morning, everyone. Before starting my presentation, I wanted to point out that starting in 2022, to make our communication with the market more simplified, we are not adjusting our results by the IFRS 16 index. We use the stockholder numbers. The IFRS 16 is on the result -- is adjusted results on Page 11 with this reconciliation. On Slide 10, we have the principal numbers of the quarter. We had a gross revenue of BRL 538 million, an increase of 21% in a comparison year-on-year. The gross profit was BRL 85.6 million, an increase of 20% compared to the previous year and an 18.9% margin, in line with the same numbers from last year. EBITDA went up by about 20%, reaching BRL 67 million with a margin of 14.9%, almost in line with the previous year. Adjusted for the nonrecurring factors of 17 -- it grew by 17% with a margin of 15%. Our adjusted net income generated by acquisitions was BRL 8.6 million and our ROIC increased to 44.3%. On the next slide, #11, show the comparison of our gross revenue. As was shown in the previous -- on the left-hand graph, our organic growth was 21% in relation to the previous year. In cumulative 9 months, we've had strong growth of 32%, 27% of which is organic. On the right-hand side, we have a breakdown of the principal segments of the company. In the B2C segment, we had an increase -- organic increase of 31% and in the 9 months, 47%. In the B2B segment, our growth in the quarter was 8% and 11% accumulated for 9 months. We'd like to highlight, as Bruno mentioned, that more -- the change in mix of our orders with the continuance of this growth of light deliveries and the reduction in heavy deliveries with higher added value, meaning that this tendency is aligned with the macroeconomic scenario for the white line and electro-electronics. On the Slide #12 is the profit. We show our profitability compared to previous periods. On the left-hand side, you can see the growth of 20% in gross revenue in relation to the third quarter of '21. The gross margin had a reduction of 0.2% annually and 0.7% in relation to the second quarter of 2022, which due to the great efficiencies generated. And the accumulated 9 months, we had a growth in gross profit of 35%, an increase of 18.4% in relation to the previous period. On the right-hand side, our EBITDA shows growth of 20% and reaching BRL 67.4 million. The EBITDA margin was 45%, similar to the previous year. In the 9-month accumulated number, it grew by 45% and or 3% on the base. On Slide 13, we also have a graph to show our cash flow and indebtedness. By the end of 2022, we had a growth of the 27% in our operating cash flow. This was the -- had an impact on our cash -- our working capital. We looked at our operating cash analysis, we see that it was BRL 41 million due to an increase that should have occurred in this quarter but was only implemented 5 days after the end of the quarter. In this way, our operating cash flow reached BRL 13.3 million in the same way. We made the same analysis in the 9 months accumulated, and we had a cash flow which would have been by 74% a conversion -- EBITDA conversion of 38%. On the bottom of this slide, it shows the evolution of our investments and our debt. On the left-hand side, our investment reached 15% -- BRL 15 million, [ 15% ] of our revenue. And in the 9 months, the investments were BRL 39.8 million equivalent to 2.4% of our net revenue -- of our gross revenue. Our net debt reached BRL 400 million, in relation to 1.7x EBITDA. Our net debt is healthy and comfortable in relation to our covenants. With that, I will close the financial results, and I pass it over to Dina, so that she can talk about the evolution of our ESG.

Thank you, Stucchi. Well, good morning, everyone. Starting my presentation on Slide 15, I would like to point out the 4 pillars which orient our ESG actions, emissions, mobility, communities and drivers, [indiscernible] -- a detailed study of our business and our segments. Based on these pillars, we define the objectives -- the ambitions by 2030, carbon neutrality, urban mobility in the priority cities and the human development in the Sequoia ecosystem and guarantee the safety and development and fair work of our drivers -- of our drivers and delivery people. On Slide 16, I talk about our public commitments which we have assumed until 2025 with the objection -- with the objective of reaching our goals. We are going to reduce our emissions with goals in line with the Paris Climate Agreement. And we will seek by 2022, adhesion to the CDP and the alignment with the science-based targets SBTI. By 2024, we will establish a climate resilience plan following the orientation of the TCFG. And by 2025, we will offer -- and offer the opportunity of low emissions deliveries with 100% offset in deliveries. By 2025, we will have zero landfill in our operation. In mobility, we're involving in local forums and have started to offer alternative services and less polluting services by the type of float -- fleet and drop-off points. Our commitment is by 2025 to have 15% of our fleet with clean energy and have 40% of our coverage of drops in the most dense urban areas. In our community pillar, we're going to create basis based on the ecosystem, the Sequoia ecosystem with the focus on the employees and sellers and partners living in our areas. By 2023, we will want to increase the opportunities for growth in these areas. By 2023, we will model the Human Development Index for employees in the surrounding communities. By 2024, we expand the Sequoia's Seeds, our Sequoia Seeds Internship Program which for the second year, we were -- we received a prize as the best internship program in Sao Paulo and we are running at the national title, again. By 2025, we will train 25% of our small sellers and partners in terms of management and sustainability. And finally, in our driver column and the delivery people column, we'll establish a unified safety standard for the -- to better evaluate their working conditions. By 2023, we will do the modeling of the Human Development Index for the drivers and deliverers. By 2024, we will establish a Positive Social Impact Program based on the current reality and the fair work criteria. And by 2025, we'll establish a single last mile road safety standard, single last mile road safety standard. In the third quarter of 2022, please consult our release, our results release. With that, I will close it and pass it back over to Armando.

Thank you, Dina. With that, we finalize our presentation, and we're now open for questions from any of our participants.

[Operator Instructions] Our first question comes from the webcast, [ Arlindo Soza ].

Is it probable that shortly, we will have new increases in the diesel costs due to the lack of the international prices? How does Sequoia look at this possibility? Will there be space for new pass-throughs to the clients during this fourth quarter of 2022?

Arlindo, thank you for the question. In our vision, the dynamic of the market is basically -- as we saw in the first quarter of this year, by the end of the first quarter and the end of the second quarter, where we had the highest impact of diesel with the oil at $115 a barrel. And at that time, looking our releases of results, we were able to offset this increase with pass-throughs to the clients. We understand that if there's a new increase, it will not be significant. And since there's already this dynamic known pass-through too as the increase in diesel prices in our understanding, it will not be a serious problem since people are already -- our clients are already sensitive to this situation and that the negotiation will be much simpler than it was in the second quarter.

Next question comes from the webcast from [ Bernardo ], private.

Can you please give us more details in relation to the integration of the segment, B2C and B2B? And what are the benefits -- the expected benefits? Beyond that, what would be a traffic control tower?

Bruno, again, thank you for your question, Bernardo. As Armando mentioned, we are focusing on the integration of the different networks, B2C and B2B networks. And in this phase, we want to take between 45 and 60 days. Basically, it's the conjunction of our affiliates. This brings benefits to us of higher cost efficiencies and the better use of our assets and the operational efficiency in the -- both in the B2C as well as B2B deliveries. We understand that this journey should be done by the end of this year when we will complete the integration. As far as the traffic control tower, it's a tool, which we are implementing in our invested company. It's basically the organization of all of our motorized trucks, tractors in line with -- knowing where all of our assets are and how they're being utilized and with that have greater operational capacity, more predictability of how to use these assets more efficiently and also a better efficiency and utilization of our fleet. Basically, it's just that.

Next question, also from the webcast from [indiscernible].