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 for the third quarter of '23 -- fourth quarter of '23. We have with us Armando Marchesan, CEO; Ian Andrade, CFO and Director of Investor Relations; and Sir Bruno Henrique, COO; and Guilherme Juliani CEO of Move3. We inform that this presentation is being recorded and translated simultaneously. The translation is available clicking on the interpretation button. For those who want to hear the conference in English, the option to silence original audio, mute original audio during the presentation of the company all participants will be with their microphones turned off. And after that, we will start the session of questions and answers to ask questions. Please click on the Q&A icon, type your name and the name of your company. Once you have been called, you will see a solicitation to turn on your microphone, and you should activate it to make questions. We mentioned that any questions that may be made during this conference are relative to the perspectives of business of Sequoia, operational goals and financial goals which constitute projections of the management of the company and which may or may not happen. Investors should use a [ political ] factor, the macroeconomic factor. There's another operational factor that could affect the results of the company, which may differ materially from those expressed in this call, to open this conference on the fourth quarter of '23. I'll pass the microphone Armando Marchesan, Sir Marchesan please go ahead.

Good morning. Good morning to everyone. We announced today the results referenced to the fourth quarter of 2023. On Page 4, if you're following the presentation on Page 4, we bring the principal highlights of the quarter. As we published on March 28, we signed the closing of an operation with Move3, which is Move3, which is a strategic step and our important step of transforming the company and amplifying our operational capacity, brings important synergies, cost reductions and expenses and also brings a potential annual revenue of approximately BRL 1.6 billion, considering the results -- the pro forma results for the year 2023. The second highlight is the conclusion of the restructuring of our debt which our CFO, Ian will give more detail regarding that in sequence as we are following. In general lines, we finished the fourth emission of debentures, convertible debentures which were negotiated within the lengthening of the unpaid balance in December '23. We designed an overall agreement with the principal bank creditors of the company with the objective of restructuring our debts and convertible instruments during the additional efforts for the reduction of costs and SG&A have reached annualized BRL 233 million. This reduction also is important step and reflects our search for efficiency and optimization of resources -- well, the company's resources. Finally, I'd like to highlight that even during this restructuring and reorganization, we have had the stability of revenue in comparison with the previous quarter, the third quarter of '23. And during a period of restructuring -- during the last year. Now I'm going to pass it over to Slide 5, where Ian Andrade, CFO will present the restructuring -- the financial restructuring and the principal highlights. Thank you, Ian, please go ahead.

Thank you, Armando. Good morning, everyone. In this section of the presentation, we'll talk about several details about the restructuring of the company, which is made up of 2 different things. First, the restructuring the debt; and secondly, the reduction of fixed costs and expenses in the administrative area. Going to Slide 6. Talking about the restructuring of our debt, our prospect -- our restructuring was begun in the third quarter of '23 and was finished in the fourth quarter of '23. In August of '23, we had a position of debt -- financial debt of approximately BRL 700 million divided into 2 major groups of interests, people who held their third emission of the benches in the value of 300 million in banks who had approximately BRL 400 million with various financial instruments and the majority with -- secured by receivables of the company. With the restructuring of this debt was based on the company and its financial creditors and it was divided into 4 steps. The first, the renegotiation of the third issue of debentures in which -- in a friendly way, there was more than 90% of debentures joined. We did the third emission altering its term substantially. And in -- the payment was put forward for a bullet payment in 2029 with a lengthening of period total of -- total period of nonpayment of interest, grace period of interest for 3 years. It was also a liberation of the obligation of construction of guarantees and other terms. So we renegotiated a third issuance and those -- so all those debentures went to the -- migrated to the fourth issuance of debentures and instruments were just convertible into debentures, which are obligatory. 78.7% of these 78% of the simple debenture holders moved into this equity, reaching a 80% of approximately of conversion into equity in the same structure, the third and fourth steps, the fourth issuance of debentures. Why? Because the fourth issue of debentures, which is made in October had -- signed the exchange debt also had a series of cash, where investors could subscribe these convertible instruments and in cash, which made it possible to inject $100 million in cash to the company coming at that time. And beyond the cash management being improved by these convertible debentures and there were several new lines of credit for working cash. We looked at all of the existing debentures, and we converted all of the third into the fourth issue had the injection of new capital into the company. And the fourth step, which is the step, which exclusively for the banks in December, we signed an agreement with the bank creditors, which made results very similar to those of the debentures, something about 80% of the creditors converted there that into equity and lengthened their debt with 3 years of grace period, 5 years of principal grace period and the banks are no longer having a bullet grow up in '29, but it will be amortized between '29 and '31, 5 years of grace on the principal and 3 more years to pay the principal in small payments. The next slide, Slide 7. We saw and we see graphically the results of our debt, the debentures, as I mentioned, the balance of BRL 300 million after the conversion is now stabilized at BRL 65 million, which is about 75% of conversion in the banks, 78% converted. It went from BRL 410 million to BRL 90 million. Both balances will remain in a stretched out period, with payment of interest only after '29. And the third emission, the interest was -- it was a debenture that had CDI plus [ 65% ], today cost CDI with no spread and in the case of the bank debt, it was a liberation of guarantees, debt that had guarantees of receivables and other assets of the company. There was this use of guarantees. And then we're talking about CDI plus 2%, since it's a longer period of time than the debentures that were linked and also. Going to next slide, Slide 8. This shows -- we demonstrate the operation, the debt and our balance in the fourth quarter. In a objective way, you have here a graphic -- the picture that after the conversion of the banks, we will have a rate of leverage of 0.4x a PL with what do we say pro forma because the agreement which was signed in December, but the implementation of the conversion is happening now in the first quarter of '24 about the 6th issue of debentures, convertible debentures, which is aimed at our balance over the next quarters -- in the fourth quarter. So we're looking at this in a pro forma way at that time, which in no way makes it the clear has its balance very clearly well structured and manageable, have a static balance and looking at the future with the flow of this debt, which will be very greatly linked into. Looking at the next slide, Slide 9. Talk about the second part of our -- second work front in expenses in administrative and general expenses. We are reducing these costs in a way that is totally integrated and in every area of the company. We're following a process of not just cutting expenses in the financial area, but in all of the company in a form that is dynamic and assertive. As far as the operation on fixed costs, it's important to reiterate that this is not done. There is still a lot to do. However, I would say that 80% is done. And what has been done, we've reached already 58% of the fixed operating costs in which the principal reductions are won, in the building costs and CDs on operational basis on the equipment area, which is an important matter in our costs. We reduced the proportion of rented equipment. We substituted mechanisms and risk management to limit the scope of these questions. And we reduced our head count indirectly -- indirect head count as well. And going to the next slide, Slide 10. We reached a reduction of 63% in SG&A expenses, systems, people, contracts, suppliers, third parties. We closed our CSE in Americana and also our base here in [ Alphaville ] Together, looking at all these -- all these fronts, and the reduction of costs, we have reached an annualized rate of BRL 76 million in savings, BRL 76 million in fixed and SG&A expenses. We think it's important to mention that structuring work on this debt and the cost of expenses were conducted intensively and by the administration of the company without the use of any outside consultants and since the administration and the directors have also participated in this. Now I'm going to pass along to talk about our future and Sequoia Move3.

Thank you, Ian, congratulations. Good morning. On Slide 12, we would like to present a little bit more the structure of our new group Move3, company was founded in 1993 with the logistics and has become the leader in the banking area. Since 2011, we expanded our ecosystem offering to its clients, principally last mile delivery, which is the final delivery of transport of e-commerce with urgent deliveries on the same-day deliveries. And then going forward, we started to include in the groups several other brands, of ours, such as [indiscernible] and through several M&As that we have done. The operation Move3 will bring a great amount of complementarity to Sequoia and its clients and vice versa. Move3 has a very large network of 500 franchisees, a little bit more than 500 franchisees and 9 distribution centers, which reaches more than 5,000 municipalities in our country. To give you a little more color on Slide 13. About our synergies and everything that we have to do going forward. I'm going to pass it over to Bruno.

Thank you, Guilherme, good morning, everyone. The principle characteristic of this transaction is a complementarity. The synergies, the most relevant synergies that we've mapped out with relation to the geographic complementarity of these logistic bridges. We have a relevant interest. We have a leaders in our local markets and will bring important levers of efficiency. Beyond that, we have great synergies in costs and expenses, which will permit the restructuring and more efficient restructuring and offering services of higher quality. We also believe that there will be an annualized effect on EBITDA between BRL 60 million and BRL 80 million from these synergies. On Slide #14, we present the synergies and the business synergies between the companies and the principal levers for growth. All the business units of packages, field services, logistics will be complementary. We're going to capture important operational synergies incorporating all of the technology and innovations utilized in Move3 in these segments, reinforcing our commitment to offer better quality services to our clients and partners. We're going to continue focusing on segments in which we already have a good level of profitability, such as express delivery, FTL Full Truckload and dedicated operations. Beyond that, we've added to our portfolio, the bank objects, which is Move3 as a reference, leveraging our growth. Beyond this, we go to the Logtech arm, which is the level, which is the platform for quick deliveries -- same day deliveries. The 2 companies will add even more innovation to the operation and we combine the technology of each one. This will bring relevant competitive advantages for the next years. On Slide 15, I'm going to pass it back to Ian to talk about the results of the fourth quarter of '23.

Thank you, Bruno. There is a very important movement in the company validating what we're doing here. With relation to the fourth quarter results, I would like to mention that this will be the last quarter in which the company will present stand-alone results since we closed this deal on the first quarter, starting with the next quarter, we'll present numbers on the balance results and with Move3 included in our numbers in an integrated way, since it's -- now that the deal is formally closed, but it's important to mention that the performance and the results in the fourth quarter. On Slide 16, we have here a little bit more detail talking to Armando, without even talking about this context of restructuring, financial, operational negotiation of M&As, fusions. And so we've maintained everything stabilized in the third and fourth quarters. With the highlight of growth in the business models, which have the biggest contribution margin which are Express and Middle Mile. Logistics and field services are stable and there was a slight reduction in packages and first mile as Bruno mentioned previously, these business, things have a lot of synergies and looking at the market in the fusion of Move3 and Sequoia. On Slide 17, we look at the at the gross profit and adjusted gross profit. Here we separated what is recurring and what is nonrecurring. Looking at the adjusted explicating the effects of this we see an improvement in EBITDA and we see in our DRE in our financial statements that the reduction of expense of the company was integrated into the numbers of the company in gross profit. We see BRL 33 million in the first quarter and in the fourth quarter, BRL 16.8 million negative this negative number is not something positive to point out, but we have an improvement of BRL 17 million, BRL 7 million from 1 quarter to the next. And EBITDA, we had the same effect, which is continues negative, but the adjusted EBITDA of BRL 45 million negative in the fourth quarter, an improvement of BRL 3.9 million in adjusted EBITDA. Why is it important to look at these numbers in an adjusted way exerting the e-commerce because it's normal and it's a direct consequence of 2 variables, the seriousness and the transparency of the administration of the company and also a direct impact of the restructuring on the company. Since these are not recurring -- nonrecurring there are 2 different types. First of all, the first block, the recurring effects, which are coming from the revision of the administration. We see what did this translate into a concrete way into our financial statements and the expectation and the -- our legal question, the principal consequence was not the labor costs or -- but the tax effects, which brings to us a reflection of an environment, which is harder under the Brazilian the federal income tax people and the auditors nationally and locally. There was also an increase in excessive at work, but most of this is legal and PDD, which is a nonpayment of receivables, which is basically due to the macroeconomic situation in Brazil. Companies that are fragile and that we've done in the third quarter of 2023. The second group of origins for these nonrecurring impacts on our results come from direct impacts of the restructuring. The costs, nonrecurring expenses such as recisions with people, closing contracts, agreements with suppliers. And in other lines, as we have restructured not only our financial units, but also renegotiated our -- all of our receivables and M&As, which were indicated from last year. And this renegotiation process of these payments to minimize the cash effect on the company and to other types of negotiations such as assets, stock and other methods of payment. This also generates a need to write down several of our assets. We had things to pay, and we had a lot of indemnities to be paid for these companies. So we have to renegotiate this negative things and how they affect the company. Our objective is -- our principal objective is cash the demobilization of noncore assets, whether it be operational, trucks, equipment, things that we're not using, including subsidiaries. We sold our participation in Olympus last year. Sale of assets, which not always at market prices do not reach their full accounting value. So in a very objective way, the company -- the fourth quarter has stabilized revenue. We captured several reductions in affecting our gross profit and the nonrecurring effects, I can say we're expected but are highly predictable doing in light of what we've done, which is to revisit expectations, restructure the company and these nonrecurring expenses in a very well stabilized way. On to the next slide, Slide 18. If in the fourth quarter, we saw all of the nonrecurring expenses, an increase in expenses and revenues here. The principle of this slide, as I mentioned at the beginning of the session, this last quarter for Sequoia will report its numbers stand-alone. And the rest of the, which is being included -- Move3 being included in our financial statements. So this will give us some light for the market of how -- with the financial statements of the B in a more pro forma way, Sequoia plus Move3 in a vision of 2023 with our historic vision Move3 and Move3 had gross revenue of BRL 82 million, BRL 600 and net profit of BRL 1,600 million and amidst of ex-IFRS was BRL 62 million. Adding these numbers together, which we already dedicated to the company, all the adjustments, we had a follow-up in revenue. From the beginning of the year, remembering that this operation -- the financial operation is no longer a restructuring that we mentioned at the beginning of the year. We have here discount of adjustments to effect heavy freight and the transformation of the company. Net revenue -- a variable revenue for the heavy freight not considering the variable costs of this revenue. Its going to BRL 1 million, but the numbers which we've shown at the beginning of the presentation, analyzed the reduction of cost of building costs, indirect fixed costs and SG&A costs, the company it will return in its adjusted numbers, BRL 62 million in its EBITDA. So if we add it all together, this adjusted plus the adjustments analyzed and the restructuring, performance, extremely healthy performance and positive of Move3. We have a financial statement pro forma of a company that's selling BRL 1.6 billion, BRL 1.4 billion in net revenue. Lucro profit of BRL 266 and a margin of 19% EBITDA of BRL 149 million with an EBITDA margin of 11%. It's extremely healthy and reflects the -- all of our efforts for growth in a healthy way and a consistent basis, new clients, new business lines, new clients, new teams. And with that, and I'm going to pass it over to Armando for any final comments.

Thank you, Ian. We want to -- now for questions answers, will wrap up synthesis summary. We concluded the reorganization and process of the company. Positioning Sequoia as one of the leaders in volume and sales with this fusion with Move3, which brings expertise, automation and a series of other opportunities and complementary business as Bruno and Ian have mentioned. The most relevant part, we established a mobility for the next few years in a pro forma way, we can say that we have EBITDA of -- in that the lengthening of our debt. We have a debt that will be good for the next few years. Our objective right now, at the beginning of this integration was to capture the synergies of costs over the years. And finally, looking at these benefits of our services, to update our client base. In that way, I would like to thank you all for your participation in our call in our results call. And I want to open up now for any questions that you might have. Thank you very much.

[Operator Instructions] Our first question comes from [ Kasian ] investor.

Bruno can you give you an examples of synergies with Move3, what is the period of time for the implementation of the synergies?

Thanks for the question. Of course, imagine that the 2 companies have footprints in similar areas in the center west and [indiscernible] with operations and structures, which are very similar. Through natural unification of these DCs, the unification of the trucks that make these routes and which are not today are at their full capacity. And this naturally will bring a reduction of cost to unit costs and other important synergies mapped out -- mapping out systems of contracts, facilities contracts, risk management, insurance contracts. These are things that we have pre-mapped and naturally, we're going to take a deep dive into the possibilities that we have for the next few months in our expectation, this should happen between 6 and next 6 to 12 months, starting in April.

Our next question comes from Felipe from Turbizo.