SIMPAR S.A. (SIMH3.SA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, welcome to SIMPAR's conference call to discuss the results for the second quarter of 2025. The session is being recorded, and a replay will be available on the company's website at ri.simpar.com.br. The presentation is also available for download. [Operator Instructions] Before we proceed, I would like to remind everyone that forward-looking statements are based on the beliefs and assumptions of SIMPAR's management and on information currently available to the company. These statements are subject to risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should be aware that macroeconomic conditions, industry trends and other factors may cause actual result to differ materially from those in the forward-looking statements. Joining us today are Mr. Fernando Simoes, Chief Executive Officer; and Denys Ferrez, Executive VP of Corporate Finance and IR Officer. We will now turn the floor over to Mr. Fernando Simoes, who will begin the presentation. Please, Mr. Simoes, you may go ahead.

Good morning, everyone. We are starting the presentation of SIMPAR's second quarter 2025 results. On behalf of more than 57,000 employees, I would like to thank you all for joining us. Before we begin on Page 3, where we cover our main highlights, I would like to remind you that since the end of last year, when we completed a cycle of large investment in infrastructure creation and transforming the scale of our companies over the last 4 or 5 years, we have entered at the end of last year a new cycle focused on capturing synergies and improving operational efficiency with much less CapEx. The goal is to drive organic growth and further enhance our results, increasing our margins of all our businesses. On Page 3, then we discuss some of our main highlights. We're beginning to see some of our effects. We posted BRL 10.5 billion in revenue in 2Q '25, growth of 5% with EBITDA reaching a record BRL 3 billion, up 13% from the same period last year. Our bottom line was a net loss of BRL 36 million. And when we talk about return on invested capital, we came in 1% above our cost of capital. Although we began focus on operational efficiency at the end of last year, that is doing more with less, we're still at the beginning of the cycle in execution. So, it's not fully reflected in our results. Even so, thanks to our market positioning, quality of our services, relationship with client, sector diversification and the fact we are always operating in resilient areas of the economy, both our services and our revenue have held up sustainably. We have been renegotiating contracts and setting differentiated pricing for new services, which brings us more revenue and a trend towards margin improvement, always charging our clients a fair price. Thanks to the diversification of our service portfolio, we have been achieving consistent organic growth. You see we saw a 6% increase in total revenue in 2Q '25 versus 2Q '24, with service revenue also up 6%. Excluding retail, net revenue from services rose more than 10%, all organically supported by higher operational efficiency, which is already yielding some of the benefits from the execution that began late last year. We also increased our EBITDA margin by 2 percentage point, while EBITDA per employee grew 25%. We have been highly focused on aligning our investments to generate higher returns. Thanks to our strong relationship with the financial market and our investor, we have broad access to funding sources, which contributes significantly to our development. Our focus remains on deleveraging and improving our capital structure. We reduced leverage from 3.8x when we compare 2Q '24 to 3.6x in 2Q '25, even though we are still early in executing our operational efficiency improvement plan. Reducing leverage and improving our capital structure are part of our plan. As you see from 3.8x in 2Q '24, we closed 2Q '25 at 3.6x. Let me give you an example here, not to create expectations of the opportunities we see. With all this efficiency, we have been reclaiming assets anticipating client needs, getting ahead of some operational moves to better manage asset turnover. For example, when a client returns asset early, we avoid larger financial problems. So today, we have across the group around BRL 3 billion in assets that are either in inventory or not leased or are up for sale or lease, whether in agri business or other activities. This can be transformed into either sales, generating BRL 3 billion in liquidity for the company or into leases. That is, we have been working hard on this, and these are undoubtedly assets that will be monetized even by deleveraging. There are still opportunities, whether in operational efficiency, asset management, repossessions or asset utilization. Now moving on to Page 4. We have some examples of further efficiency. Remember, we are just starting our actions, but they are already reflected in higher revenue and lower costs, which improve our margins, and this is clear on Page 4. As you can see, we have negotiated prices on certain contracts. We are very agile in doing so, ensuring a sustainable and viable return. We have also been pricing new contracts to reflect financing costs and also new CapEx requirement. We have acted strongly to reduce costs, whether through lower supplier prices, changes in scope, cuts in operational expenses, including personnel costs. Synergies have brought significant cost savings as shown on Page 4. On the right, you see that operational efficiency has improved. EBITDA margin has increased by 1 percentage point and EBITDA per employee grew 25% from 2Q '24 to 2Q '25. This illustrates the result of our program of doing more with less. This is our plan. And the idea is to grow revenue, reduce cost and have margin improvement. On Page 5, we have JSL. I'll go over it briefly as the company has already disclosed its results. JSL has the largest portfolio of logistics service with the widest diversification in services and sectors. All our companies share a common focus on services with strong resilience. I often say that focusing on our services has been a strategic choice. While the market can live without our companies, it will -- cannot live without the kind of services we provide. They are essential services and someone will have to provide them. Our strategy is to ensure that clients choose us, enabling to grow organically alongside them. JSL is an example, growth of 20% quarter-over-quarter, new contracts signed and a significant and long-term backlog. It renegotiates contract whenever necessary to ensure they remain sustainable, managing each one individually. And operational efficiency comes from its people, management model, which contributes to sustainable growth, whether through operational efficiency, capital optimization or cash generation, leading to better capital structure and higher returns, while maintaining a high degree of resilience, which is very important. Turning on to Page 6. We have Movida, which also has released its result. As you know, over the last 10 years, Movida has pursued a transformation as a focus on scale. It has achieved the scale, differentiated market position with the DNA not only serving the client, but putting itself at the service of the client. This is our strategy, long-term commercial relationship with clients. And Movida has in its DNA anticipating client needs, and this has consistently improved the quality of its rental services, modernizing through systems and optimizing fleet mix. This has not only increased customer loyalty, but also attracted in the first half of the year with this DNA, its way of being attracting 322,000 new clients to the company. This also makes it possible through services, through our differentials really set us apart, offering clients the best cost benefit in rates. And price adjustments are continuous and responsible. The idea is always to have fair prices for client, while ensuring the company's sustainable development. This has improved margins and strengthened our market positioning. And Movida has been recognized as the best company in the sector in NPS for customer services. Operational productivity has improved with a fully implemented used vehicles infrastructure and turnover managed by store. Also a differentiated position in cars in mix store profile and especially our people who do outstanding work. And this has driven revenue growth and sustainable margin improvement, supported by service quality, greater operational efficiency, accurate purchasing and inventory management. With its systems and store infrastructure, both in used cars and in the rental car, Movida today operates in an ecosystem with great improvements, opportunities for improvement, though the most challenging part has been completed. Now it's about doing more and better for our clients, which will result in organic growth and margin expansion. On Page 7, we have Vamos, market leader in the leasing of trucks, forklifts and more broadly machinery. Vamos posted revenue of BRL 1.4 billion in 2Q '25, up about 17% from the same period last year. EBITDA margin was 82% with adjusted net income of BRL 83 million and a net margin of 5.9%. Some of key highlights. Asset sales revenue in the second quarter reached BRL 324 million, 79% above the same period last year, demonstrating the high liquidity of its assets. In recent quarter, repossessions due to credit issues have been significant with early asset returns. We believe these numbers will decrease going forward. On the other hand, Vamos has been managing delinquency proactively, anticipating repossessions and negotiations for early returns. Today, it has BRL 1.7 billion in used vehicles in inventory, which the team is working to reduce to nearly 0 in the coming quarters, either by leasing them or selling them to generate cash and strengthen the capital structure. Again, without creating expectations, imagine the impact of leasing or selling these used vehicles, generating revenue or liquidity, while improving the capital structure. It's important to highlight Vamos' strong growth potential due to market opportunities in urban cleaning, environmental services, e-commerce, manufacturing industry, direct leasing to clients. We believe Vamos is entering a new development cycle with you will see better capital allocation, higher occupancy rates, reduced inventory, deleveraging and profitable growth in a highly sustainable way. There's huge opportunities for this market. On Page 8, we have Automob. Automobile, part of its strategic plan execution involved creating the largest dealership network with the widest mix of automobiles, trucks, agricultural machinery and construction equipment. Today, after execution, Automob has 196 stores, 68 cities, 12 states, representing 37 brands. It posted net revenue of over BRL 3 billion, EBITDA of BRL 110 million and adjusted net loss of BRL 37 million in 2Q '25. These numbers that are being presented still do not reflect the new cycle Automob is entering, a cycle focused on operational efficiency, synergy across companies, higher sales volume per store and also administrative integration. We expect the cycle to be completed by the end of 2026. And what we expect, just to give you some examples of this new cycle, a significant increase in used vehicles per store, better pricing, whether in after sales, labor or parts, higher return per vehicle sold and that by implementing best practices already adopted in some of our stores. This transformation has the potential to significantly improve result. We are just starting the cycle and Automob team is focused on capturing synergies, expanding sales more efficiently. We believe executing this plan will bring organic growth cost dilution, much higher returns and will put us in a new position starting in 4Q 2026. Turning on to Page 9, we have CS Infra. We are building at CS Infra a portfolio of long-term concessions with low CapEx requirements focused primarily on services and that can have resilient revenue streams. And along this line, we have CS Portos, 2 ports in [indiscernible] , which we already presented to you, which have completed monetization and construction, almost BRL 1 billion in CapEx. They will begin operating at full capacity as of September this year and with high demand expected from January '26 onwards. We have high demand for the 2 ports, [ A212 ] and NT without creating expectations, but the guidance for '26 is what we believe, and we have been feeling the demand for services at the port. CS Rodovias, we also in Piaui have [ Transcerrad ], we have already presented to you, but we have also a win in Mato Grosso, the East block terminals in the city of Sao Paulo. So many concessions that are still preoperational, but with assets like the port beginning operations next year. So that is the trend to see for the future. As we won the bridge tender, small CapEx, but revenues come immediately and DNA of services. We see many opportunities in Brazil for concessions with this profile, service-based with resilience revenue and long-term contracts. We have the team in place and port completion is proof of our management quality. I think that this is something that has to be considered. Remember that nearly the entire portfolio is still preoperational. Moving on to Page 10, we have Ciclus Ambiental, which has also been posting organic growth, as you can see in revenue. Transformation in leverage, as you can see since '23 through 2Q '25 and major opportunities for growth, both in additional revenue and in winning new concessions. For instance, you know that in Brazil, over 40% of solid waste is still untreated. On Page 11, we have CS Brasil, specialized in mobility and fleet outsourcing. When we talk about fleet outsourcing, we are talking about with driver services, executing services for public or mixed ownership companies. CS Brasil plays a central role. The public sector has increasingly sought outsourcing, sometimes with driver services that execute the service. This is the work of CS Brasil. Great opportunities as seen in CS Brasil revenue growth from '21 to 2Q '25, reaching BRL 379 million. On Page 12, we go to BBC Bank, with a high-quality loan portfolio, robust collateral and delinquency below market averages. The portfolio has grown quarter-over-quarter. And remember, its main focus is its digital account, maintaining a differentiated relationship with truckers, also financing used trucks and used cars within the SIMPAR ecosystem. While there are some business outside the ecosystem, the focus remains on used vehicles, trucks and machinery with robust collateral because we typically, we work with 30%, 40% down payments and finance 60% to 70% of value. The portfolio has been growing consistently with strong growth potential. On Page 13, we had some of our consolidated financial highlights, and I will hand it over to Denys for more detail on the financials. Denys?

Thank you, Fernando. Good morning, everyone. On Page 13, on a consolidated basis, I will start with the top left. Net revenue in 2Q '25 totaled BRL 10.545 billion for the group, of which BRL 2 billion came from asset sales and BRL 8.5 billion from net revenue from services. This represents a 6% increase compared to the same period last year. On the right, we have EBITDA totaling nearly BRL 3 billion in the quarter, 13% higher than in the same period last year and outpacing revenue growth, delivering a margin of 28.4%, which is 2 percentage points higher year-over-year. Below on the left, EBIT, our operating income totaled BRL 1.9 billion with a 17.6% margin. Also up 6% above the same period last year. On the right, in the adjusted net income chart, we see 2Q '25 shows a negative result of BRL 36 million in contrast with the profit in the same period last year. This reflects the increase in interest rates between the 2 periods, which was roughly 40% in the base rate between the 2 periods. Now I'm going to move to Page 14. On the left, we talk a bit about investments. We have net CapEx in a quarterly comparison. In 2Q '25, investment volume was 8% lower year-over-year. In half year comparison, the reduction was even greater, about 50% in the first half '25 compared to the first half '24. When we break it down by company, you see that the largest demand for net CapEx came from Movida, which reflects seasonality as July is one of the strongest months for the car rental industry. So, this tends to lead to fill purchases ahead of adjustments that may be needed afterward. Still on investments, if we turn to Page 15, we show evidence that investment volume is much lower than in prior years. Again, given the focus shift toward efficiency. In the past years, we invested, and you can see here at the center of the page, up to twice our EBITDA for the year. And this trend began to reverse last year when net investment equaled EBITDA. That is a 1:1 ratio. Now in the first 6 months of this year, on an annualized basis, we see an inversion that is EBITDA is twice our net CapEx. So, I believe that this will remain the trend through year-end, again, reinforcing our focus on generating more efficiency from what has already been invested rather than on expansion. Now I would like to move on to the next slide, where we talk about our debt and liquidity profile, consolidated base. So here, you see net debt consolidated at BRL 42 billion. Remember that we have companies individually listed on the Novo Mercado, so these figures are simply aggregated for consolidated reporting purposes. Cash, BRL 13.4 billion, covering 2.3x short-term debt maturities or in other words, amortizations until early '27 with an average net debt term of 4.1 years. We continue active liability management with BRL 2.6 billion raised this quarter, maintaining the group's historically strong liquidity profile. Now if we move on to the next slide, 17. Here, we talk a bit about SIMPAR as the holding company, no longer consolidated numbers. Here at SIMPAR, net debt stands at BRL 3 billion with BRL 3.6 billion in cash, average net debt of 5.9 years and short-term debt coverage about 10x or coverage amortizations until the year of 2030 approximately, which give us comfort to execute our strategic plan. On Page 18, we bring to you some aspects of our leverage ratios. We report using the external debt criteria that is net debt to EBITDA closed in 2Q '25 at 3.6x, stable since 4Q '24. For local debt, the ratio is 2.3x, also stable since 2Q '24 in this case. Now we brought to you here a different view that we call normalization. Based on the results already disclosed by our listed companies, we see assets available for sale or in the process of normalizing utilization rates. When we print those items that together using Automob and JSL numbers, we get close to a total of BRL 2.9 billion. So, these are not idle or nonperforming assets. They have a strong secondary market are on our balance sheet and are in the process of monetization. If we deduct this BRL 3 billion from the balance, the external debt ratio would be in the 2Q '25, 3.4x instead of 3.6x and in the local debt ratio, it would be 2.1x instead of 2.3x. This is important because all market funding has historically been and continues to be allocated to assets with significant residual value and high secondary market liquidity. So, I understand this is important information to share with you. On the right, we show what we consider the business leverage ratio, that is total liabilities linked to assets minus the present value of expected residual values to present value again, which stands at 2.5x, very close again to the local debt metric. Now I'm going to move on to the next slide when we discuss return on invested capital based on the concept of productive ROIC, adjusted for capital that is not generating cash. Here, we see an important improvement in productive ROIC in 2Q '25, reaching 13.8% compared to 10.8% in the same period last year. With this, we have an improvement in return on invested capital of 3 percentage points, basically from the 20% growth in operating income in the last 12 years, again, based on 2Q '25 vis-a-vis the 2Q '24. Well, with that, I'd like to thank you all and hand it back to Fernando. Fernando?

Thank you, Denys. On Page 20, we have some of the front in executing our strategic plan as mandated by our Board. The goal is to maximize the value from the foundation we built over recent years. We have developed solid growth pillar, scaled up all our controlled companies. And now we are in a cycle of extracting value with much lower CapEx needs, while continuing to grow. This is very important. We are focused on tightening control over operating costs and admin expenses, as well as renegotiating contracts with suppliers, generating significant gains, both in price reductions and more importantly in changes to supplier scopes. One of the most important points in my view is our focus on asset management, whether in occupancy rates, agility in deployment and retirement, inventory turnover without creating expectations again. We believe we have an opportunity to reduce about BRL 3 billion when we talk about better asset management, whether from used vehicle sales, higher occupancy rates in our leasing companies or working capital improvements. This will reduce investment needs or generate liquidity through asset sales, lowering our leverage. This is one of our main focus for the next quarters and pricing discipline, reviewing current prices, setting new ones appropriately given the economic environment. Efficiency, combined with service quality builds customer loyalty, while ensuring that we are not competing solely on price, but also on service quality and the value we deliver, offering the best cost benefit to our clients. We believe the outcome of these actions will be strong cash generation, lower investment needs and sustainable value creation for continuous growth. Well, that concludes my presentation. Once again, I'd like to thank you for the opportunity, and we will now open for the Q&A. Once again, thank you very much.

Our first question comes from Matheus Sant'Anna from XP.

I have 2 questions. First, I would like to focus on how you see the market of light vehicles. I think there were many things with the IPI tax. We saw a month of June with weaker sales pickup in July. What do you see from July onwards, mostly sales because I think that impacts Automob and Movida and BBC. And the second question is thinking about Ciclus. We saw the growth of the amendments that you had for biogas. Any other opportunity for increasing revenues in that company?

This is Fernando. Hi, Matheus. Good morning, everyone. I thank you all. We have more than 300 people participating. Thanks for your time. Okay, Matheus, the automotive market in July. Without giving you guidance, it was a very good month, one of the best, to be honest. So, it was a very good month. Movida released its month of July in used vehicles, and we see no signs different from what we had before, even an improvement. Remember that the second half is historically better than the first half. And the IPI for us, it was something that really did not change prices structurally, not in automobile prices. So again, nothing different from the context we had before, quite the opposite. When you talk about BBC bank, but also the market as a whole. Yesterday, I was in the opening of a store of ours at 9 and people are talking about banks and credit continues normal, no problems with individuals for credit even with interest rates as high as they are. This is our feeling at BBC, but also overall at our F&I desk that operates with Automob and Movida. So, things going on. Credit is okay. Individuals are not delinquent with banks. What we hear is that small businesses and some of medium-sized businesses are showing some problems. But the IPI tax is not affecting bank credit or the development of sales of our companies. And we are always at this 2.5 million cars a year for many years. It's not growing, but it's not growing. It's a bit up or down, but it's more or less like this. And in Automob, the more we have cars in Brazil. And I say that affordable cars in Brazil are not new cars anymore. They are used cars, cars that are BRL 65,000, BRL 70,000, BRL 80,000. And Movida has exactly the right cars for this type of customers. And Movida stores, we invest in infrastructure system. So, it's much more with the look like of a dealership store than those yards that you have in the past. So, it does have any yards, but it's completely different in terms of layout. So, thanks, Matheus, I hope I have answered your questions? Ciclus, Denys just reminded me. Yes, Ciclus, just for you to know, it's been 3 years now that we talk about opportunities for improvements at Ciclus for it to reach maturity. So, what you're seeing in Ciclus result is an important part related to the biogas amendment, but it has to do with corporate management volume, scale. You have operations in different landfills. You have less treatment costs, you have gas, you have efficiency. So, these are efficiencies that can even improve our result. So, we say about the potential of our asset, and we have several assets with potential. At CS Infra, for instance, we have assets that are still preoperational. So, I do not see anything huge as guess for Ciclus, but I see an opportunity for improving its operating margin.

And just to add, this is Denys speaking. Ciclus in its process of reestablishing its economic conditions after a long time of negotiation, you see with a very important EBITDA numbers. Annualized, this is already an asset. Remember that Ciclus Ambiental has 2 operations, but it's already generating about BRL 300 million in EBITDA annualized numbers. So, I don't know if everyone is perceiving the magnitude of its development. But thanks, Matheus for your question.

Our next question comes from Andre Ferreira from Bradesco BBI.

I have 2 topics. The first is about net CapEx that dropped 8% year-over-year. Last year, I think it was close to 80%, and that's much related to Movida in the first quarter. With that, the EBITDA net CapEx ratio went from 4x to 1.5x. When we think of expectations for the group's companies, in our math, we could get to close to 2x in this ratio, perhaps a bit lower this year. Does it make sense? And the second question is just an update to know if CS Portos has moved forward compared to the guidance for '26.

This is Denys speaking, Andre. Well, if you think of the ratio, I'd like to call your attention to the annualized base. In the quarter, it was lower. It is what you mentioned quarter-on-quarter. But in the half year, it's still 50% lower. The difficulty here is the guidance for the future. But I think when we look at our plans, I truly believe that this rate, again, think of the annualized quarter has still a trend of improvement. So, without giving you a hard number, but we do have the seasonal aspect of Movida, specifically about July, which is a month of high activity. So, when you break down net CapEx, you see that it was Movida that led these numbers. So, because Movida is always adjusting its fleet size compared to utilization because of more or less accelerated seasonal volume, I think we could have either this annualized number to better.

Andre, just to add to what Denys said, we are always talking about the opportunity we have in several of our companies, Vamos, for instance, with the inventory of what we call the [ Centrinovo ] product with early returns or repossession, the opportunity of selling those assets, which also reduces net CapEx. This is very important for us to remember, either extending current contracts, Vamos has been focused on that. So, leasing for a second cycle or selling. So, either way, that turns into a lower net CapEx. So again, no guidance, but of course, that depends on our agility in selling used vehicles, but Vamos is doing excel work. So, when you get JSL, you also have the opportunities. Movida has been doing excellent work, but it can improve utilization rates. So that's the work now, and we are working very hard on that. And the other question, can you ask again, Andre, I think it was about CS Portos, right?

Yes. If you are ahead of that EBITDA expectation for 2026.

What I can tell you, Andre, is that the port is ready. And in August, we are going to complete the port. That was a question of many people. In a nutshell, we always took around that God helps us, but we work very hard for that. So, our plan -- our business plan was set, but demand has been much higher than expected and it's interesting. What we learned for people to work with us, they wanted to see the port completed. So, we had modernization work we did everything. We've renovated ending large the peer, everything. We almost built a new port. And this is ready. And now the demand is coming. What I can tell you for sure is that we are seeing it happen. We know that we are going to meet the numbers we guided for next year, BRL 400 million. So, I think that's a ensure demand. The companies want to use our plants because if they use our plants rather than the port of [ Maio ], they save 600 kilometers. So that's a huge improvement. And it's very much in line with our plan and now with the port ready as of next month.