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

Hello. Good morning, ladies and gentlemen. Welcome to the video conference of Sequoia Logística with reference to the results of the first quarter of 2024. With us today are Armando Marchesan, CEO; [ Leopoldo Bruggen ], CFO and Director of Relations with Investors. We would like to inform you that this is being recorded and translated. The translation is available in interpretation button. For those who are listening to the agreed conference in English, the option to silence original audio and mute original audio. During the presentation of the company, all participants will be -- will have their microphones turned off. After that, we'll start the question-and-answer session. To make any questions, please pick on the Q&A icon and mention your name and company. We'll give you a solicitation to turn on your microphone. At that point, you can turn on your microphone and make your questions. We clarify that any declarations which may be made during this teleconference are relative to the perspectives of business of Sequoia, operational goals and financial goals, which constitute projections of the directors of the company and which may or may not happen. Investors should understand that political factors, macroeconomic and other factors, operational factors may affect the future of the company and bring us to results which are materially different than those expressed in these future considerations. To open the video conference of the first quarter of 2024, I would now like to pass it over to Armando Marchesan, who will start the presentation. Sir Armando, please go ahead.

Thank you. Good morning, everyone. We announced today our results for the first quarter of 2024. We're going to start with Page 4, bringing the principal highlights of the quarter. As we mentioned in our recent presentation on the 28th of March of 2024, we concluded the transaction with Group Move3, and we have already started the integration between the 2 companies. Together with an outside consultancy, we have mapped out all the synergies that we will detail going forward in this presentation, these synergies mapped out are above BRL 100 million in savings annually. We are identifying the synergies that we have already structured in our chronogram for the execution -- well-defined execution program. It will also be possible to capture these economies, these savings in the third quarter of this year. The third highlight, as we mentioned at the end of last year, we concluded in May of 2024 a restructuring plan with our financial creditors, and we will give you more details as we go forward. Finally, we have the pleasure of announcing the new -- initiation of a new Mega Sorter Damon, one of the biggest in Latin America, which will make it possible to have us more agility and speed in deliveries to our clients with more capacity of more than 1 million packages per day. Going on to Slide 5. I'm going to pass the word over to our CFO, [ Leopoldo ], who will give us more details about the restructuring of our financial creditors.

Thank you, Armando. On Slide 6, we bring a summary of all the restructuring of the creditors, financial creditors, which started in October 2023 and which was finished in May with [ integration ] of BRL 341 million of debt and debentures into convertible interest and stock convertible ventures. To recapitulate what happened in October '23, we renegotiated and elongated our debentures with the third emission with the debentures, and 80% of these debentures were converted in the fourth emission which will now be convertible into stock to shares beyond the entrance of BRL 100 million of additional new money for working capital. Of these conversions, we reduced our debt by BRL 241 million. We also did the fifth emission of debentures, which captured another BRL 16 million for working capital. Finally, after the signing of the global accord with the principal financial creditors in December of 2023, we concluded in May the sixth emission of debentures with a conversion of BRL 341 million of bank debt into convertible debentures. Beyond this, we also elongated BRL 170 million in loans with 2 banks at a rate of CDI plus 2% with a 3-year grace period for interest and 5 years for principal. In summarizing, the company captured BRL 582 million in debt, lengthened the payment terms for more than BRL 172 million in debt and was able to inject BRL 116 million in cash for working capital. With this, the company gained wind to be able to focus on the implementation of the synergies that have been mapped out and the restructuring with our creditors, our nonfinancial creditors. Passing on to Slide 7, I'm going to pass it back over to Armando, who will bring the principal points of the integration of Sequoia and Move3.

Thank you, Leo. On Slide 8, we bring the principal indicators of the combination of the two great logistic operators in the market. We count on with the presence, a commercial presence with a coverage of more than 5,000 cities, a vast and diversified base of clients combined, which are more than 4,500 clients and an area of storage above 74 million square meters -- 700,000 square meters. The new company will attend 20 the largest players in e-commerce, B2B and e-commerce, passing to become the leader in their categories. Looking at Slide 9, we show you the new Mega Sorter Damon, Damon Mega Sorter, which will give us the started activities at the end of this month of July. We invested BRL 70 million considering the expenses with infrastructure, installation and electrical networks, physical installations. This sorter is one of the biggest and most modern in Latin America and will bring more agility and speed for the deliveries guaranteeing excellence in SLA giving services to our clients. The new sorter has a capacity to route 34,000 objects per hour, has a great deal of flexibility working in accordance with the demand and adjusting to different types of operations and volumes of -- which can be processed on this equipment. On Slide 10, we bring our execution plan with the -- and synergies which have been mapped out, as we mentioned previously, with an economy -- annualized economy of BRL 100 million after these movements have all been put into place. As we mentioned in Item 1, we have already done in our first week of July, a reduction of 20% in the headcount of the company, which will generate savings, monthly savings of BRL 4 million. Beyond this initiative, we have mapped out what's happening in the third quarter and consolidation and return of 1 distribution center, along with your negotiation on the price tables and the improvement of renegotiation of contracts, which impact directly on our costs. On the fourth quarter, we'll also have the optimization of 5 transfer routes and other adjustments, which depending on the implementation of technology and also the administrative area, which will add an additional economy of BRL 11 million per year. On the next slide, on #11, we'd like to point out the principal initiatives for the recovery of growth in the second half of the year with a focus -- total focus on operational excellence and profitability. As we said previously, we're going to focus on Sequoia Move3. Together, this will be one of the biggest players in e-commerce, Brazilian e-commerce. We work on electronics, telephones and other segments. As part of our strategy and focus on profitability, we are prioritizing the business units with the biggest margin and the highest level of profitability, also delivering a higher level of service to our clients. In relation to our structural pricing, we're going to revise the current contracts and using a new approach, which will guarantee a structure that's more competitive and aligned with the needs of the market. Beyond doing that, it will give us focus on our commercial focus of our clients and guarantee excellency in SLA and the quality of delivery services. We have a lot of work ahead of us, but we're confident that with the plan we have laid out, we'll be able to comply with this schedule. Now I'm going to pass it back over to Leo, who will present the results for the first quarter.

Thank you, Armando. On Slide 13, we bring the results, the combined results pro forma for the first quarter of 2024. As was highlighted in the release, with the transaction between the company happening at the end of March, the financial demonstrations do not yet reflect the results of the 2 companies, the combined results of 2 companies. But considering the results of Move3 together with Sequoia, we had an EBITDA, a combined pro forma EBITDA of BRL 15.7 million negative. Going on to Slide 14, we presented a balance of the 2 companies combined, this combination has been revised by independent auditors. In this balance, we have not presenting the conversions of the renegotiation of the debt with the financial creditors of the company. Once that the inter utilization will happen in May -- it happened in May of 2024, we have a lot of work ahead of us to guarantee the results, stronger results. Looking at the next slide, #15, we present in more detail, the new members of our Board, Board of Directors of the company and the new directors who were elected in the first half of this year. In the upper left-hand corner of this slide, we have the members of the Board of Directors. And on the right-hand side, the biographies of the new members elected in the last assembly. Senior [ Ian Andrade and Andre Pereira ] bring lots of experience and various valuable contributions to the company. Personal companies working with great companies such as Nestle, Google, Waze and other considerable challenges. Additionally, on the occasion of the announcement of the closing of the operation with the Move3, we announced 2 new members, Move3. Sir Antonio Juliani, who founded the company in 1992, will add great experience to our Board of Directors; and Guilherme Juliani, who occupies a position as a director, the board member and brings a great deal of knowledge of innovation and technology and has the mission of helping us an integration of the 2 companies. Finally, at the end of May, the company joined as a new CFO, the Director of Relations with Investors, to lead this process of restructuring and recovery of growth with a total focus on the generation of operational -- positive operating cash. We consider the final months of the restructuring, financial restructuring with the acquisition of Move3. In the lower right-hand corner, presenting a graph which shows our stockholder base in a pro forma way the debentures which issued and those delivered to Juliani family. As was mentioned, in a relative fact on 20th of March, we brought these informations as conditions of the transaction. Passing to Slide 16, I'm going to pass the word back to Armando, who's going to present the principal challenges for 2024.

Thank you, Leo. On Slide 17, we summarize the final -- the principal challenges we have ahead of us. We're confident that with a lot of work that we have done with our Board members our experienced Board members in each one of the sectors, and our entire integrated team, together with our partners, clients and suppliers, we will overcome these challenges in the short term. The first point is exactly the integration of Sequoia and Move3, with the implementation of the synergies already mapped out as we mentioned previously, which would generate a great deal of important value for the company. The second point in relation to nonfinancial creditors and the liabilities, tax liabilities, we could guarantee the necessary space to take these initiatives and give us a good communication with our clients and stakeholders. And finally, the focus on principal delivery of our positive cash flow and in this way, guarantee better in our credit rating and the recovery of the value -- market value of the company. I'd like to now thank you all for your participation in our call, earnings call, and now open it up for any questions you may have.

[Operator Instructions] Our first question comes from [ Leandro Lance from Universe Business ].

I'd like to know how does this fit together the generation of cash in the current moment? And if over the second half of the year, the company, combined company will continue generating losses? Or if it's already generating positive results/profits?

Good morning, Leandro. Leo speaking. We have captured BRL 20 million, which was recently published. And with this BRL 20 million, we are doing the firings, which will bring a return of BRL 4 million per month, the firing of -- which involves a lot of synergies between Sequoia and Move3. So in terms of cash flow, we made a recent fundraising to invest in the capture of these synergies. This has to do with your second question. Once we start to capture these synergies, we will start to present positive results, more positive results. Secondly, in the second half of this year, the second quarter -- there was no time to capture the synergies in the first half, but we'll see these in the combined results starting in the third quarter. So we'll have a second quarter which is pro forma without big capture of synergies. And we'll start to see these numbers improve the synergy captures starting in the third quarter. I think with that, I have answered your question about our cash flow and results or future results.

Our next question comes from [ Leandro Marcus ] from BTG.

What are your expectations for the next semester?

Leandro, our expectation for the next half is aligned with what we just mentioned, once we start to invest and capture the synergies between Sequoia and Move3, we will start to present the combined results more consistent and more solid due to these savings and gains in scale.

[Operator Instructions] Our next question comes from [ Luis Cicero of Black Lemon ].

The total number of 133 million shares after the conversion is already in the base of the 20x1 or under the old rationale?