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

Good morning, ladies and gentlemen. Good morning. Welcome to the video conference results of Sequoia Logística with reference to the results of the third quarter of 2023. We have with us today, Sir Armando Marchesan, CEO; and Ian Andrade, CFO and Director of Investor Relations. We inform that the call is being recorded and transmitted simultaneously. [Operator Instructions] We just clarify that any declarations may be made during this video conference with reference to the perspectives of business of Sequoia, operational goals, financial goals constitute our projections of the directors of the company, which may or may not happen. Investors should understand that political factors, macroeconomic factors and other operational factors may affect the future of the company and bring us to the results which materially different than those expressed in these future considerations. To open the video conference with results for the third quarter of 2023, I would pass the microphone to Armando Marchesan. Sir Armando, please go ahead.

Good morning to everyone. We announced today the results with reference to the third quarter of 2023. Starting on Page 4, we bring the highlights of the period. We could start talking about important conquests reached during the closing of the quarter but also reflect the work done during recent months. We focus on our efforts on the financial restructuring, strengthening the balance of the company and so we can recover our operational results. The first part of the restructuring was done with success on the 18th of October 2023 when we completed the offering of the fourth issue of debentures, which are convertible to stock. Two very relevant effects on the capital structure of Sequoia: first, the reduction of 79% of the late balance, which is now only BRL 65 million instead of BRL 300 million previously; and secondly, the injection of BRL 100 million in the cash draw of the company, which can be utilized exclusively for operational [ to a period ] us to grow. These two effects signify a reduction of almost 50% in the net debt of the company. We also concluded with them the [ repatriation ] of the third emission of debentures with the lengthening of the remaining balance. The last part of the restructuring was renegotiation of our debt -- bank debt, which is done in a constructive way as with the entire process with the debentures in the quarter -- the last quarter together with the low point of our revenue on September, we had a growth of 7% in the net revenue compared to July. Finally, the results of the efforts, the expenses with SG&A and building costs were reduced by BRL 18 million revenue in the economy of BRL 6 million per month in comparison with the second quarter of 2023. Now I would like to call Ian Andrade, our CFO of the company, who will present the financial highlights of the quarter. Ian, please?

Thank you, Armando, and good day to everyone. If you look at Page 5, you can see the principal as financial aspects of the third quarter of 2023. Our revenue remained stable and in line with the best margins, Express and in the Middle Mile registered a fall in the sector of deliveries and the restriction of working capital in the quarter. But in the third quarter, we also captured cost reductions and expenses, which already implemented in the structure and the return of several basis. In line with the best accounting practice we explained in better -- in more detail in the next slides, revising our expectation of receivables and writing down a title of BRL 61 million and an increase of PD and 31.5. These were on our results in the third quarter without cash effects. These are noncash effects. The process of restructuring of our financial debt is going full steam. And we've already reached 47% of our net debt under the pro forma in the third quarter, and we will explain in more details in the next slides. Going to Slide 6, we can see clearly that the impact on our working capital caused a restriction of 34% in the revenue of the company when compared to the previous quarter. At the side, we can see the line of business in which we -- the maintenance of the level of revenue and businesses with the best margins. On Page 7, we have a quarterly comparison of net profit and EBITDA, which we saw were absolutely both indicators, improvement in both indicators, which are directly associated with the implementation of our cost reduction plan and which we're executing with great dynamism and discipline. Our gross revenue -- our gross profit went up by BRL 11 million. And our EBITDA, considering the adjustments -- the accounting adjustments in the receivables, also increased by 17.7%. On Page 8, we can see the revisions on the provision policy of the company and also our expectation of the realization of receivables. The administration of the company is diligently adhering to the best accounting practices, taking into consideration the following changes in context: reduction of 70% in the sales of the company in the third quarter of '23 compared to '22 and the first quarter of '23 and the increase in late payments by our clients with a better -- bigger credit risk in the macro scenario in the retail sector, including the reduction of capital of these companies. In this context, as we saw in the third quarter of 2023, we identified the increase on the provision of PDD of BRL 31 million and writing down titles in the amount of BRL 61 million. We said that this is a nonrecurring and noncash impact. On Page 9, we present a summary of the process of restructuring of our debt. The -- it is made up of 4 steps, 3 of which are already completed. One, a waiver and restructuring of the debentures, which happened in December, which made an approval of 90% of the debentures and reducing our cost of debentures for CDI [indiscernible] with no spread and 3 years with no paying -- paying only of interest and a financial covenant only in 2025 -- December '25. Subsequently, we issued BRL 342 million in the debentures, which are convertible, which will serve as a conduit to bring these next 2 steps of restructuring. They are: A, migration of the debenture, simple debentures to a new instrument convertible into stock of 78.70% or BRL 242 million to a new convertible debenture by December '24; injection of new resources into the company with a subscription of BRL 100 million of cash in our structure in the convertible debentures. And fourth and the last step is the implementation -- the full implementation of the restructuring of the bank debt. We have terms which are defined and approved but are not yet obligatory. Banks tend to follow the same line as the restructuring of the debentures. In other words, the combination of the conversion of stock and the lengthening of the remaining balance. So we look at these 3 steps already implemented with a reduction of 47% or BRL 342 million in our net debt and a reduction in our level of leverage measured by debt -- net debt to [ 5.8x to 0.8x ]. As mentioned by Armando at the beginning of this presentation, we're focused on actions already concrete -- already undertaken with strengthening of our balance and as a beginning of a new cycle of sustainable growth in Sequoia. I'm going to pass it back over to Armando for the second part of our presentation.

Thank you, Ian. On Slide 11, where we're talking about the Sequoia recovery plan, we divided the agenda into 5 steps. One, restructuring -- financial restructuring, as was mentioned by Ian, with a plan of reduction of costs and expenses. Secondly, the revision of operations and reorganization of new business units, having as a base the technical particularities of each level of service, which is demanded. And third, our focus on the commercial teams and operational teams for the recovery of our contracts and volumes previously operated by the company. The fourth step, the expansion of new contracts for each one of the units, business units. And we chose as a focus for management in 2024, they are FTL operations dedicated to First and Last Mile, Logistics and Fields and Storage, Field Service, B2C Light and Express, providing autonomy and greater agility in our decision-making process. And finally, involvement in strategic units, opportunities who -- which will be mentioned opportunely. On the right-hand side of the slide, we brought an update on the initiatives for reduction of costs and expenses, which are already being implemented. And we have the expectation of concluding them by the end of the first quarter of '24. It's worth mentioning that these initiatives with a reduction of cost and expenses have been happening since the first quarter of '23. Nonetheless, we frequently have made revisions and identified new opportunities for gains in efficiency. Based on this plan, we look at Page 12, a DRE, the financial management -- the financials of the company in the first 9 months of '23, looking at 2 effects: one, the reduction which we just mentioned on the slide -- previous slide; and secondly, the reductions already done are realized over these 9 months. The result pro forma for the 9 months, we reached 4.8% of the EBITDA margin, ex IFRS, adjusted IFRS or an EBITDA of BRL 27.9 million. It's important to mention that this margin is still not yet at the level which we consider ideal. We have the potential for gains in scale and with future growth in revenue. Looking now at Page 13, before we open for the question-and-answer period, I would like to conclude with a final message. In the third quarter, it was crucial to permit our recovery. We had important success in the financial restructuring of Sequoia, thanks to the efforts of our team and the collaboration of our loans -- of our lenders, investors and partners. We have been able to right now focus on our core business, which is to realize deliveries, quality deliveries for our clients and cultivate a relationship with our partners and suppliers. We will continue working with focus on reduction of costs and expenses and principally in the recovery of the volume together with our clients, objectifying the return of profitability and the generation of cash as quickly as possible. I'd like to thank you all for your participation in our call, in our results call and earnings call. And we're now open for the question-and-answer session. Thank you very much.

[Operator Instructions] Our first question comes from [ Ricardo Machado from Hedge Funds ].

What is the stage of negotiations with the banks? What's the status of negotiations with the banks?

Thank you for the question. This is Andrade, a helper of the system of the company. The negotiations with the banks is very well advanced. But more importantly than the stage in which these negotiations are and an estimate of the term for the conclusion of these negotiations, the principal subject in this restructuring with the banks is that it follows the same line and the same atmosphere, constructive atmosphere negotiation, which was concluded with the debentures. If we stop to think about it, we have converted with the debenture holders and the banks, which has been very constructive. And we also have a very constructive talk, which is based and equate -- equal with the technicians because all of the company's business, the foundation of the company, the operational and strategic aspects of the company are unaltered. All of the lenders and the banks are being able to tangibilize this potential. They can see this potential, these foundational principles, which even though the financial circumstances that the company has been through, the operational foundation of the company, the fundamentals are unaltered. And with supports all of these discussions with the lenders, whether it be debentures or banks, they have a common denominator, which is the business plan, a vision of the future, which is well based with an administration which is extremely focused on the recovery of growth in a sustainable and perennial way. I ask you for your forgiveness for not being able to answer more precisely and what stage these negotiations currently are. But I would like to ask your question and say that it's more qualitative in all the questions in this financial area. This has been happening very constructively, very transparently based on data and future business with high levels of credibility and high levels of assertiveness. Thank you very much for your question, Ricardo.

[Operator Instructions] The next question comes from [ Felipe Fonseca ]. He says, what are the expectations for volumes for the Black Friday and Christmas period?

This is Armando speaking. I think that the expectations are very good. However, there is a process of recovery. We don't expect any accelerated growth at this time. Also, which had been previous to Black Friday and Christmas, in August and September, we took a lot of steps. So we don't have any dramatic change as we had in previous years. However, of course, demand always increases at this time of year, which is following the natural seasonality of the business. We had this deceleration principally at the end of last year and the beginning of this year. But in general, in certain -- it's happened only in certain categories, and we can have some benefits in volumes in this sense. Remembering that all of the business units, the category which captures most growth is the B2C Light, B2C category especially e-commerce point -- end-to-end e-commerce deliveries. And this is the category, the business unit, which would capture the biggest volume at this time. It's a unit which we are making this ramp up after the recovery, operational recovery that the company had in these last 2 or 3 months. So we also have benefits at the -- from the end of the year, which compared to the previous months will benefit based on a base of costs that we have shown in the building costs and direct costs based on a lower base and more utilized, which will help our margins at the end of the year, okay? Thank you for your question.

[Operator Instructions] Next question is from Arlindo Souza. He says, Ian, can you explore a little bit more the perspectives of the administration for the stabilization of revenue, which presented a new fall off quarter-on-quarter for the fourth quarter of '23. There are still a lot of costs and expenses related to the restructuring, the return of bases and so forth. Are there still many of these things to be realized?