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

Good afternoon. Good morning, ladies and gentlemen. Welcome to the video conference of the results of Sequoia Logistics with reference to the results of the third quarter of 2024. We have with us today Mr. Armando Marchesan, CEO; Leopoldo Bruggen, CFO; and Director of relations with investors, Alexandre Rodrigues, Diego Rixison. We inform that the presentation is being recorded and simultaneously translated. The translation is available clicking on the button interpretation button. For those listening to the videoconference in English, the option of silence the original audio is on mute original audio option. [Operator Instructions] We clarify that any declarations which may be made during this conference relative to the perspectives of business of Sequoia, operational targets and financial targets, our projections of the management of the company, which may or may not happen. Investors should understand that factors, political factors, macroeconomic factors and other operational factors may affect the future of the company and lead to results, which differ materially from those expressed in these future consideration. To open the conference of the third quarter of 2024, I pass the word to Armando Marchesan.

Thank you all. Good morning to everyone. Thank you for your presence. We're going to start our presentation for the third quarter of 2024. As you can see on the slide at the beginning -- on the fourth slide, we made important advances in the situation of the company, which Leopoldo, who we call Leo, will present in detail further ahead. In October, we finalized a global of ex suppliers of the company here. This mediation with Move3 and other factors and other investors. It's an important step for the stabilization of the company, and we're confident in its success. We also protocoled requests for tax transactions within the federal sphere and state sphere using the norms that exist for companies in restructuring. Also in an organized way, we are selling assets, which we judge not to be essential, to generate cash for the activities of the country as was announced previously. Opening the presentation for the restructuring on the next slide. I would like to summarize the principal efforts before passing it over to Leo. In accordance with the banks and the debenture holders, we were successful being able to put 73% of the debt in convertible mandatory titles in 2027 and principal due in 2029. With this restructuring, we captured new resources for the acquisition of Move3 Group, which is an operational and commercial merger and for the capital of the company. With the Move3, we initiated a process of capture of synergies, which is still underway. We brought new members into the management team and for the Board of Directors. And through these new eyes, we're going to accelerate our integration and our processes. As we said previously, we then started to implement solutions for the reduction of our liabilities, together with ex suppliers and taxes. Nonstrategic assets are being sold to generate cash as we announced recently. After all of the efforts stated above, we start with the goal to start 2025 with our liabilities under control, and with a positive generation of EBITDA. I'm now going to pass it over to Leo, who's going to detail the restructuring process.

Thank you, Armando, and thank you all for joining us in our conference. Bringing these efforts into numbers, we're talking about a potential for the reduction of BRL 1.1 billion in our liabilities. Not including in this the economic reduction, which exists in the repackaging -- renegotiation of liabilities for 5 years with interest rates below the cost of capital. The reduction of our debts with our financial creditors represents BRL 582 million, being BRL 172 million, which was stretched out. With the mediation of non-financial creditors, we had a reduction of BRL 152 million, being BRL 110 million convertible into shares and BRL 42 million in discounts foreseen in the plan. BRL 124 million, within 60 months, starting in 2030 indexed to the IPCA. Whether we made our request in IPCA, we did a reduction of interest and fines of BRL 700 million as well as fiscal costs with a reduction of BRL 379 million of these liabilities, tax liabilities. The -- it's been common to be limited to 84 months when we did not offer -- guarantees are not offered that are not accepted by the PGN. In Sao Paulo, we are asking for 120. It's an important reduction, reduced to -- of the assets which are in the company for 1 year. I'm going to go through the entire restructuring of the -- looking at the financial creditors step. We made a global agreement, which was initiated in 2023, migrating BRL 221 million in debt to convertible debentures. In May of this year, we converted BRL 311 million in bank loans to convertible debentures. On the next slide, as you can see at the top on the upper left-hand corner, the conversions into shares, BRL 241 million, as I mentioned, for our debenture holders and BRL 341 million of bank debt. In the lower right-hand side, we have the renegotiations with creditors to convertible agreements whose periods were lengthened and interest rates were renegotiated to the CDI plus 2%. The payment periods will start to be run in 2029. Looking at the next slide, I'm going to explain a little bit the remediation with the nonfinancial creditors. After several meetings with nonfinancial creditors who have been pressuring the company through executions and even requests for bankruptcy, we're able to reduce by 54% of these values to a unified plan, covering all of the creditors of Sequoia and the transport -- American transport company. With this support, we have requested the approval of this plan for the extra judicial part of our plan. After an initial part, it was defined in 2021 and was also agreed to a period for the paralyzation of blockages as well as the liberation of judicial deposits. The support of more than 50% of our creditors was fundamental for us, and we're only going forward with this plan when we reach this level. The next slide, we're going to present the options of this plan. First option is the total conversion of credits into shares at the price of BRL 8 per share limited to BRL 110 million. Second option, the payment in 36 months indexed to the IPCA with a grace period of 5 years, also 60 months also accounting from the approval of the plan. Third option is a 30% discount with payment in 7 years indexed to the IPCA with a grace period of 1 year. And for -- the other options are for 50%, with 50% discount with the 16 payment months, corrected by the IPCA, where 70% of our discount for cash payments. Both of these options have a cap. Remembering that the group of Move3 were not included in this plan. I'd like to now give our Director of Restructuring, [ Diego Rixison ] who will present the rest of the agreement -- the timeline for the agreement.

Thank you for those who are present. Thank you, Leo. Thank you, Armando. When we started this project in May of this year, we diagnosed that the -- began questions with the creditors. Without a global agreement, it would not be possible to address each one of these individual demands. We have accepted the approval as was expected -- as was explained by Leo. On 11th of October of 2024, a period or extrajudicial in the court in San Paulo. On 21st of October, we received decision deferring this -- the approval of this plan. It was determined, yes, the eligibility of all the credits over 120 days, the stay period, in which case only -- can only be accepted in accordance with one of the options in the plan as soon as it was approved. In sequence in 14th of November, we published a -- for a period of complaints as well as the company sent letters informing all of the creditors of the options available. It's important that the judge responsible for this signed an extrajudicial administrator to show the regularity of the titles with the Sequoia Transport. For 1 month, the administrator issued a report on the 4th of December, attesting the legality of the plan as approved and certifying the regularity of the quorum necessary for the -- of the extrajudicial recovery. This is very important for the homologation of the agreement, the global plan. Now we are now awaiting the period of complaints, which will close at the 17th of December. It's important to mention it has not been one single result against this Sequoia. If anyone complains, the question will go to a decision for homologation for approval. In terms of an estimate, we are working with the -- a possible approval of the plan in the first quarter of 2025 due to the recess of the judicial system, which will happen between the 20th of December and the 20th of January in 2025, With that, I'll send -- pass the microphone back to Leo.

Thank you, Diego. Now looking to the restructuring, tax liabilities. In May of this year, the negotiations with the PGN showed with a discounting of interest and fines as foreseen in the law. However, the payment period was for 30 months due to the capacity of Sequoia to make these payments. And the [ PGPN, ] or in other words, BRL 800 million in 5 years, which is not -- which does not go along with the current reality of this company. This calculation for the capacity of payment does not take into consideration the debts with financial creditors and nonfinancial creditors. In June, we declined this 30-month proposal after analyzing that we would not have cash flow to honor these commitments. And then in October, we asked the revision of that and we annexed and the documents for the extrajudicial recovery. In these attempts, we saw a reduction of interest and fines as well as the reduction of tax liabilities limited to 70%, which results in a fiscal debt restructured of BRL 77 million. Looking at the next slide, we are asking for the -- from the prosecutor's office in Sao Paulo, the benefits of reduction of fines and interest on the ICMS taxes as well as a payment over a 120-day period -- 120-month period. If these debts are difficult to recover at the current level, we will make -- trying to reduce to BRL 18 million and make this in 120 payments. I'm now going to pass the results for the quarter and for the period ending at the end of third quarter 2024. The results for the period did not capture the benefits of the restructuring -- various of the restructurings in the payroll and the distribution center were began only in August. The result for the quarter of 2023 does not include Move3 group, while the results for 2024 has the addition of Sequoia with Move3. The principal highlights in the quarter are the improvement of our gross margin, positive in BRL 51.7 million, which, along with EBITDA, which -- even though it's negative, it has an improvement compared to the third quarter -- the fourth quarter of this year and the first quarter of next year. In the to-date -- 9 months to date, we can see the improvement of performance both in gross margin as well as in our EBITDA. We did capture BRL 20 million in August of 2024. We have set up the reduction of our payroll and the closing of several distribution centers. Many of these locations operated logistics -- indoor logistics for clients -- for business clients, mean that many of them -- several of them have shown lack of use and tight margins in relation to the capital employed. With these reductions, we expect an economy of BRL 6.9 million per month starting in September, which means that very little was captured until the third quarter of 2024. Several adjustments -- nonrecurring adjustments are explained in the release of results. However, the principal ones are the need to increase the amount of the nonfinancial creditors within the recovery plan, the extrajudicial plan, and the Transportadora Americana since this company has joined the recovery -- extrajudicial recovery. On the next slide, we can see by the balance, some of these movements, the first being the reduction of the right of use, which are the distribution centers that are rented and the use of suppliers coming from the extrajudicial plan. It's worth mentioning also that there still is an important potential recovery of BRL 540 million -- or BRL [ 522 ] million if we're successful in the extrajudicial recovery. And in the tax benefits, as I commented previously. And looking at the next slide, I'm going to explain the details of these adjustments to these creditors. We started the mediation with approximately BRL 200 million in the balance of suppliers provided for proven contingencies. Within the mediation process, several administrative creditors were evaluated and we opted to end these disputes. One example was a huge CD in Ambev, where we had BRL 54 million in dispute, but BRL 16 million was recognized as owed. The unregistered amount for that is a possible loss, generating a great deal of uncertainty. Looking at the negotiation for the reduction of BRL 4 million in this discussion and a discount of 50% on the leftover balance, the value to be paid will be go down to BRL 25 million. At this moment, we showed an increase of BRL 16 million in what was accounted for to BRL 50 million. However, if the plan was approved, we would have a benefit of BRL 20 million in discounts. We had an increase now, while the benefit of the plan will only be captured in accounting terms after it is approved. Having said that, the total increase was BRL 113 million. The total list of creditors totaling to BRL 300 million, approximately 1/3 will be converted into shares. We'll have a discount of BRL 42 million and another BRL 125 million, which will begin to be paid in 5 years. With all that, the cash outlays of the plan will be only BRL 35 million between 2025 and 2026. Looking at the next slide. As we said previously, we closed several distribution centers during the year and several others are being delivered in this last quarter. As you can see on the graph, of 120 CDs, we will begin next year with only 5. Due to the -- this is possible by the demobilization of 2 businesses, the indoor logistics and the field service, which is the distribution of payment terminals. We can see the final results of this plan. We're going to now go from a monthly rental costs from BRL 12 million to less than BRL 2 million per month at the beginning of next year. With that, I'm going to finalize my part of the presentation. However, I'm here for any other channels for communication with our investors. I am going to pass it back over to Armando.

Thank you, Leo. Very good. Thank you. I'm going to talk about the integration and how our operations are going forward. Even with the restructuring presented by Leo, the group still has 2,800 employees permitting us to have 120 million deliveries per year in more than 5,000 cities in Brazil. We also count on more than 19 partner deliveries and we handle 450 clients, including well-known brands in their sectors, which we are very proud to be able to attend. On the next slide, we see how we've separated the business units between Sequoia and Move3. Move3, or more specifically, de Flash, is the leader in services for the franchise market and supply services, logistics services for the delivery of credit cards and also for its business segment. We have automation on the CD, which is very sophisticated and differentiated. The B2C market is totally integrated in Move3 through the new mega sorter in São Bernardo do Campo. This sorter is one of the biggest projects in Latin America, being able to do 34,000 packages per hour, in other words, almost 1 million per day, and more than 300 exits, which gives a very efficient rotorization. There's a huge potential for growth in that business area, and we start -- this sorter started only in the second half of this year, so there's still lots of capacity for growth. Since there's a certain concentration in Sequoia through our model of contracting partner deliveries in using technologies already existing, we have been able to maintain good results and efficient results with clients such as Shein and Mercado Livre. In the Expresso segment, which uses intelligence to do fast and secure deliveries with high-value items such as smartphones and computers among others. And this technology is done through air transport, last mile and armored cars. In the beginning of 2025, after 14 years ahead of Sequoia after its years, I decided, together with the Board of the company, to pass on to the Board and operating on the Board and helping in strategic areas. As we recently mentioned, we're in the process of transition and integration with the new CEO, Alexandre Rodrigues, who is already operating internally in this position and will occupy this position definitively on the 1st of February of next year. I'd like to now leave a space for Alexandre to present and comment on the integration. Please go ahead.

Thank you, Armando. Thank you, Leo. Good morning to everyone. It's a pleasure to be here. I'd like to reinforce that I'm very enthusiastic with the challenge that is before me. I'm finding this group an excellent working plan, well set up. And looking at this transition, as Armando -- we have -- there's no lack of discipline and austerity. And principally, an untiring work for operational excellence, count on me. Please count on me. Thank you.

Thank you, [ Aleo ]. Once again, welcome. And in this way, we now close our presentation in the third quarter. And we now are available for any questions you might have.

[Operator Instructions] Our first question is from Laurence Leu, who asks, can you speak a little bit about the business perspectives for 2025?

Thank you for the question, Laurence. This is Leo speaking. As we mentioned during the presentation, this is a moment for restructuring and reintegration. We're working very hard on these 2 fronts. I understand that the guidance for 2025 is something which will happen naturally as a fruit both of the restructuring as well as the integration. However, I would say that for the investor right now, it's a moment to believe in the restructuring and believe in the integration. The guidance that I can give you is something that will come naturally. It wouldn't make sense right now at this moment to give you any kind of guidance for 2025 as far as the -- well, the integration and restructuring is still not complete. Our expectation is to complete both the restructuring as well as the integration by the end of this year to be able to enter in 2025 stronger, to be able to then give guidance as far as the perspectives for the investors. It's a moment, again, to believe together and understand that the restructuring and integration of the future. Armando?

[Operator Instructions] Our next question is from [ Mattias Peninka ], the company -- did the company communicate to the market about the delay in this demonstration? What has caused these constant delays as why are we doing this? There's been a huge delay in the preparation of these demonstrations.

It's a good question, Mattias. What has happened is the fruit of the integration and the restructuring. In this quarter, we had a lot of work to -- of auditing, not only from outside auditors, but also by the judicial administrator, of all the credits, which were included in the extrajudicial recovery. On the presentation, we had to even increase that which was registered in our accounting numbers. Within this increase, we had to discuss, not only with the judicial administrators, auditors, et cetera, each one of these increments. So we've passed this along several quarters with facts, such as the first audit of Move3. We have the -- now with the recovery of the extrajudicial recovery, which are creating these delays. We obviously do not want to have any delays in the releasing of these numbers, knowing that the market starts to imagine things, when in reality, we're all working here normally. But given -- for the next quarter, we hope to be able to have things more comfortable, more tranquil due to the judicial administrator has released this week their report, in fact, praising all the positive numbers that we have done as far as the creditors and the recovery. So I think by the end of the year, we'll be normal in our -- in terms of internal controls, systems, et cetera. We have our ERP, the Proteus. We have our accounting team. We have our controls, all here working hard to integrate the 2 companies and also, at the same time, to deliver the numbers -- audited numbers within any period of time that's necessary. These are abnormal factors, and I think that in the next few quarters, we'll be back to normality.