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

Good morning, ladies and gentlemen. Welcome to the video conference results for Sequoia Logistica with reference to the Results of the Second Quarter of 2024. We have with us Armando Marchesan, CEO; and Leopoldo Bruggen, CFO and Director of Investor Relations. We inform that the presentation is being recorded and translated simultaneously. The translation is available clicking on the button interpretation. For those listening to the videoconference in English, there is the option of silencing the original audio in Portuguese clicking on the mute original audio option. [Operator Instructions] We clarify that any declarations that may be made during this teleconference relative to the perspectives of -- business perspectives of Sequoia, operational goals and financial goals constitute projections of the directors of the company, which may or may not occur. Investors should understand that political factors, macroeconomic factors and other factors, operational factors can affect the future of the company and lead to results that are materially different than those expressed in these future considerations. To open the videoconference of results for the second quarter of 2024, I will now pass the word to Armando Marchesan. Sir Armando?

Good morning, everyone. I'd like to announce today the closing of our results reference to the second quarter of 24. Starting on Page 4, being the principal highlights of the quarter. As we announced in the previous quarter, we have started the integration between Sequoia and Move3. And with the synergies that were mapped out, we realized BRL 100 million of annualized savings, which is by the end of July, we have already reached 77% of this goal. The impact on the account savings was more than BRL 40 million, and we have at an annualized rate of $80 million. In this way, in the second quarter, it already be positive to capture part of the savings in the results. We created a project office under the leadership of one of our operations directors to follow these synergies and maintain periodic reports to the Directors and the Board of Directors. 48% of the group of the Sequoia and Move3 Group, along with the lengthening of the payment periods. But beyond that, the -- with the -- beyond the step of the restructuring -- financial restructuring, the group is following the plan which we're restructuring with the nonfinancial creditors and renegotiating the debts -- the tax debts, which we will present with more -- one of the phases of the restructuring is going to add in more details that we are focusing on the -- focus on the agenda of synergies and growth, taking advantage of its competitive advantage in a market which is still in consolidation and rate demanding. In the near future, we're thinking about our ESG agenda. Following the agenda of becoming one of the best logistics integrators within a social and environmental impact and positive and financially sustainable. Going on to Slide 5, I'm going to pass it over to Leo, our CFO, and our Director of IR, will give you more information about the process of integration between Sequoia and Move3.

Good morning, everyone. Thank you, Armando. On Slide 6, we have the stockholder structure of our group, considering the combination of Sequoia and Move3, [ Movee3, Move3 ]. We are realizing these studies to simplify the shareholder structure to reduce controls, centralize processes and have mid greater efficiency in complying with our accounting and fiscal requirements. Our proposal is to consolidate these companies with similar activities without impact on the current brands. In the lower left-hand corner of the presentation, we estimate of the base -- of the shareholder base after all of the conversions of debentures and the deliveries of new -- our shares of Sequoia to the debenture holders and the founders of Move3. On the next slide, Slide #7, we are summarizing the synergies, which we have captured until August of 2024. These synergies have been mapped out by a consultancy together with the leadership of Sequoia and Move3. After capturing a commercial bill of BRL 20 million in June, we invested BRL 15 million in disconnections of personnel and introduction of our distribution centers, initiatives that will generate an extra savings in 2024 of BRL 47 million. This savings annualized becomes -- will pass more than BRL 80 million. These savings did not consider the investment of $15 million, which was done of BRL 15 million. Starting in the second quarter, it will be possible to capture these reductions in costs and expenses. The number of employees of the group was reduced by approximately 20%, generating an economy savings of BRL 42 million on a reduction in the area of 3 distribution centers, one in Minas and 2 in the state of Sao Paulo. These reductions in the distribution centers have generated annualized savings of almost BRL 30 million. Additionally, we had initiatives of recovery of repayments, the sale of assets, including adjustments in administrative expenses, which add up to the annualized savings of almost BRL 9 million. During the second semester, we have had several new initiatives involving principally the integration of systems and our structure of back office, our back-office structure. We'll consider to follow this execution plan with the conduction of our transformation office and accompanying every 15 days, both by the administration as well as members of the Board of Directors. As we announced in the previous quarter, our goal is to capture annualized savings of approximately BRL 100 million. I will now pass it over to Armando, who will talk about the -- our commercial initiatives.

Thank you, Leo. Going to the next slide, Slide #8. We brought a little bit of our commercial context. The combination of the business or Sequoia with Move3. We are now focusing on the -- our competitive differential in a market, which is still in consolidation and rate demanding. The companies offer a complete portfolio of solutions with national coverage and technological information, guaranteeing services with great quality and great speed. The commercial team is working to recover gradually the number of clients and operations in profitable routes. The perspectives of the market are good, with many opportunities mapped out. In the transport and logistics market in Brazil has an annual growth of approximately 7%, while certain segments have as much as 14% growth. We believe that our addressable market, after all of the [ record], which has already been mentioned in the previous quarter, is above BRL 63 million per year. We -- on the right-hand side of the slide, we see the last mile in deliveries and collections and our principal businesses. On the next slide, #9, we brought a status about our differentials. We have come from Move3. We have a network of franchisees covering all of Brazil, which guarantee, capital R&D, capacity of service to quality service as well as distribution centers strategically located on the principal highways of the country. Beyond that, we have a portfolio of clients with 8 of the 10 largest marketplaces in e-commerce. And with 20 of the 20 largest banks, private banks in Brazil, we believe that this portfolio guarantees the maintenance and growth in results as well as proving our capacities to deliver good solutions. Looking at Slide 10, I pass this back over to Leo to comment on the results of the quarter.

Thank you, Armando. Looking at Slide 11, we have a composition of the results for the second quarter of 2024. It's important to mention that the values of the previous year do not include the results of Move3. They have not been audited by our independent auditors. In any event, we are presenting an estimate of the net revenue and EBITDA of -- in the text box on the right -- on the left-hand side of the graph. Since the beginning of the restructuring of Sequoia, we have repeated our principal objective is to have sustainable revenue. We focus on the profitability and not just on the size of the revenue. In this way, part of the variation in net revenue reflects a strategy of maintaining our profitable clients. The consequence of this strategy, together with the combination of Move3, we present in this quarter, a gross margin, a positive gross margin. Fruit of the strategy and the combination with Move3, we present a reduction of EBITDA -- negative EBITDA of BRL [ 15 ] million. It's worth pointing out that the investments to reduce the cost with the payroll and with the distribution centers have occurred only after the closing of this quarter in July and August of this year. In the next slide, #12, we present the results of the first 6 months of the year. Variation of the net revenue has 2 components that are important. Beyond the revision and the maintenance of our profitable clients, we have initiated the migration of contracts B2C first acquired 2 Move3. Again, we point out in the text box on the left-hand side of that box, our best estimate of the net revenue and EBITDA of Move3 for the first quarter -- for the first half of 2023. The EBITDA of the first quarter of 2024 does not include monthly savings of EUR 6 million with reference to the reduction of payroll and CDs distribution centers, we could done in July and August of this year at the cost of BRL 15 million, which is captured from a commercial paper. This value added to the reduction in the payments of CDs -- of DCs totaling BRL 72 million annually divided by 6 months. I'm going to ask you to pass to Slide #13. On Slide 13, we brought the balance between December and June of '24. We should mention again that the values I mentioned and combined with an -- only consider the audited numbers of Sequoia because this combination with Move3 happened at the end of March of 2024. The cash flow presented growth, even though there is an increase of this cash flow at the end of each month because of the payroll at the beginning of the month, the group always counts on 3,500 employees. The amounts receivable has presented a level of 83 days of net revenue, and we are operating to create an agile prebilling sale for a payment in a way to reduce this period of time and guarantee our receipts. Another highlight is the level of tax losses classified between the different business, which may be utilized in a transaction -- a [ tech ] transaction for the payment of federal tax liabilities. A reduction of debt will be commented on the next slide. On Slide 14, we brought a presentation of the evolution of the loans since December of 2023. And since we've had announced in the last quarter, Sequoia concluded in May of 2024, a restructuring of financial creditors, which involve banks and debenture holders. This -- in this way, in this quarter, the net debt of the group was reduced by almost 48% with a flow of amortization greatly lengthened. This [indiscernible] you should note that a great deal of department will only have to be made starting in 2029. On Slide #15, we are going to summarize our negotiation with the financial creditors. On the total, since October of '23, we have capitalized BRL 582 million in debt beyond the lengthening of BRL 172 million with interest rates of CDI plus 2% per year. The company has captured through debentures, convertible debentures into shares additional cash of $116 million, which will be utilized for the working capital. On the next Slide, #16, we show the 3 steps of the restructurings. After the conclusion of the first step of restructuring with our financial creditors, we will now start with the next phases. The first phase, the renegotiation with the nonfinancial creditors initiated in the last -- in recent months through the meetings with the principal creditors, personal meetings with the principal creditors considered essential for the restructuring of -- with our -- and even those suppliers, which are considered strategic for the Sequoia businesses and Move3 businesses. The transaction of tax debt, both in the federal sphere as well as in the state sphere is also -- was also undertaken. With relation to the tax debts, as we mentioned, we have not -- we have adjusted these things, but we have maintained the conversations underway with the question of revising the capacity for payment of the group and to be able to pay it in a reasonable way for the group and its administrators and also for the -- to do a transaction with -- that we cannot comply with. All these creditors and all of these tax debts are part of the balance presented previously, and the restructuring permits that the generation of cash, current and future to attend with the restructuring of Sequoia and Move3 with the -- for -- to be able to serve these debts. Once they are restructured the credits with the banks and debenture holders, we have not adopted any premises that we consider the increase in the debt level of the group, the current debt level of the group. We bring on Slide 17, a time line about the necessity of adjusting an eventual negotiation with the PGFN, as we mentioned at the beginning of July -- at the end of July through a note to the market -- through a relevant note to market. In May, we received a proposal for reduction of debts and discounts utilized in tax losses, but with a period of payment of only 30 months, considering the short period of time for payment, the company in 25th of June decided to decline the proposal and enter with a request for a revision of the capacity of payment, permitting to ask for longer periods of terms for payment and more compatible with the cash -- operational cash generation of the company. We understand that it is our objection to seek for a restructuring, which is definitive and not just push the problem down the road. Looking at the next slide, #18, I'm going to give -- be back to Armando to present a few of our ESG initiatives.

Thank you, Leo. On Slide 19, we remind our journey -- the journey since 2019, since the beginning of 2019. And over the years, Sequoia has been concerned with social and environmental questions. And once again, reinforce our commitment with the agenda of this team. On Slide #20, we have the pride to announce the beginning of the seventh round of this program, Sementes Sequoia, which was widely published by the company with the SB Foundation based on the development -- continuous development of competencies and behavior for the professional training. We have the objective of identifying young people, young talents and preparing them for the professional market or to assume positions in the company itself, where we have had an average of more than 85% of taking advantage of these young people. Since we'd like to thank you all for your participation in our call. And now we're going to open up for the question -- of questions and answers. Thank you very much.

[Operator Instructions] First question comes from [ Umberto Ilan ]. He asks congratulations, by the way, in which we have presented this vision, especially the plans for synergies. Please, can you pass us any guidance about in what quarter we may expect to return to EBITDA and net profit positive, net profit and EBITDA? Can we expect this already for the fourth quarter of '24.

Thank you for the comment, Umberto. What we see is that with the capture of these synergies that we have started and more completely starting in July and August, as I commented with the capture of BRL 20 million through commercial paper by including firings and closing of DCs, we started a third and fourth quarter in much better shape. Our expectation is that the fourth quarter with some benefits due to the seasonality in the sector. And since it is a more demanding quarter in the generation of revenue. We also feel that, that Move3, when it goes into production, which could benefit us at the end of this year with an increase in revenue, clients and volume and growth and scale as well as other effects that we work with here in our management premises and the financial expense, which we accounted in the results with the capitalization of certain loans and these expenses stop draining our cash and profits from the company, which will then be -- then will be capitalized and treated as part of our permanent capital. An important -- these demands working capital to -- for growth and for -- to promote our profitability. Once this has been done, is the restructuring with the banks and the debenture holders, it's normal that there will be several months of adaptation, publication, conversations with the financial markets until the effective recovery of the capacity to generate receivables, raise working capital to be able to do the ramp-up of certain operations. But summarizing the things that take us to believe that the fourth quarter of this year is the quarter in which we will present more solid results than those presented in the first quarter and second quarter, which are periods in which we were still working on the restructuring with the banks, the merger with Move3. And now at the end of this -- at the end of the second quarter and the beginning of the third quarter, we have begun to invest in a better -- in a bit more complete way in capturing these synergies. So I believe that now the -- by the fourth quarter will be a much more favorable quarter than the previous quarters. I think they also addressing this -- this also answers the question, [indiscernible]. Thanking for your question, which is your -- answer has already been addressed here.