T4F Entretenimento S.A. (SHOW3) Earnings Call Transcript & Summary

Good morning, and thank you very much for joining our fourth quarter earnings presentation. I will begin with an overview of the year. After that, Andre will comment about the company operational and financial performance. And later, I will close with our 2020 events pipeline and our perspective for this year. As we were explaining during our last conferences, 2019 was a challenging year for the company. We expected a quicker recovery of our results based on a predicted economy growth that didn't occur. Despite the better numbers, the market in general is still disturbed by uncertainties, creating a less encouraging environment. Political, social and economic issues had a great influence in our operational markets, Brazil, Argentina and Chile. Several events marked the last year, like Argentina with 3.8 recession and 54% in hyper inflation, social unrest protests on Chile that destabilizes the country, forcing the cancellation of several events, and the uncertainties related to Brazilian government. Consequently, EBITDA in 2019 was negative in BRL 22 million. Excluding the nonrecurring effect, adjusted EBITDA was negative in BRL 5.9 million. Now Andre will continue with the presentation, commenting on the operational and financial performance.

Good morning. To analyze the 2019 performance, I will comment about our operational performance and its impact on our net revenue, as shown in Slide 4 and 5. In 2019, we promoted 555 events with 1.1 million tickets sold and a revenue of BRL 394 million. With a reduction of 33% on the number of shows and 47% on the tickets sold in live music activity, the net revenue of event promotion segment reduced 47%, totalizing BRL 290.7 million (sic) [ BRL 291.7 million ]. Despite the increase of 94% on the number of presentations on family and event segment, we had only 20% increase in the volume of tickets sold due to the lower sales for the musical The Phantom of the Opera that debuted on August 2018 and was sold out in the last 2 quarters of that year. The reduction on live music segment was a consequence of a 65% reduction of outdoor shows, events with higher average ticket price and a higher public and 30% reduction on indoor shows, both compared to 2018. This number are a consequence of the lower flow of artists to the region and the end of the partnership with Bizarro in Chile. While in 2018, we promoted 26 outdoor shows among those, Roger Waters Tour, Ozzy Osbourne Tour and festivals like Solid Rock or Summer Break. In 2019, we promoted only 9 shows, including Paul McCartney and Popload Festival. In ticketing, food and beverage and venues operation, net revenue reduced 18% to BRL 78.4 million in 2019 as a result of a low amount of tickets sold for live music and a lower number of opening sales. The reduction of 28% on the fourth quarter of 2019 occurred because we had only one event outdoor, Popload Festival, and the opening sales of 2 Taylor Swift shows and for Lollapalooza 2020. While in the fourth quarter of 2018, we had 14 outdoor shows and the open sales of Arctic Monkeys, 4 Paul McCartney shows and Lollapalooza 2019. In sponsorship, despite the reduction in the number of outdoor shows, we increased the sponsorship for festivals, recording a net revenue increase of 4%, achieving BRL 96 million. On Slide 6, we can see that the gross profit recorded in 2019 was BRL 56.6 million, 42% lower than 2018, consequence of a lower number of shows and ticket sales of live music and theater segments. The increase on gross margin in the fourth quarter of 2019 occurred due to the better revenue mix. Total expenses amounted BRL 104 million, affected by the following nonrecurring effects: first, BRL 8.3 million write-off liability regarding the end of Bizarro partnership in Chile; second, Argentina contingency expenses of BRL 7.7 million; and third, provision of BRL 8.4 million related to a probable loss on a tax lawsuit in Chile. Excluding the nonrecurring effects, the total expenses were BRL 79.7 million in 2019, 23% higher than the previous year. This increase is explained mainly by higher provisions related to doubtful accounts of BRL 2.7 million, Aurolight impairment of BRL 1.7 million, refurbishing costs of Sao Paulo venue due to the new naming right contract and by costs related to the new organizational structure. As a result, the 2019 EBITDA was negative in BRL 22 million. And the adjusted EBITDA, excluding nonrecurring costs of Argentina legal expense in provision related to the probable lawsuit in Chile, negative in BRL 5.9 million. On next slide, I will comment on the financial result and the net income. The net financial result was negative in BRL 38 million in 2019 mainly due to: first, interest related to the debenture in the amount of BRL 9.1 million; second, negative monetary variation of BRL 20.3 million due to the adjustment by interest and hyperinflation of the contingency provision in Argentina; third, accounting adjustment of Argentina hyperinflation with a net negative impact of BRL 13.2 million. Excluding hyperinflation and the interest related to the legal expenses in Argentina, our financial result will have been negative in BRL 3.7 million. As a consequence, we ended the year with a net loss of BRL 71.8 million. Excluding the nonrecurring effects and Argentina hyperinflation adjustment, our result would have been a net loss of BRL 13 million. On the next slide, I will talk about the company's cash position. Operationally, we generated BRL 24.1 million in cash as a result of anticipated receipt of sponsorship and low cash consumption, given that we promoted fewer outdoor events in the period. In investment, we spent BRL 4.7 million in CapEx maintenance and the Popload acquisition. And in the financing flow, we spent BRL 13.4 million on the payment of lease liabilities related to the long-term rental contracts of our venues, BRL 8.8 million regarding the payment as interest expenses regarding our debt, and BRL 3.9 million as dividend payments. So we concluded 2019 with a cash position of BRL 209.7 million, total indebtedness of BRL 156.1 million, and as a consequence, a net cash of BRL 53.6 million. Before giving the floor back to Fernando, I would like to comment on an event that impacted our statement. As we informed on our last report on October 11, we entered into an operational agreement in which T4F Entretenimientos as the majority shareholder and holder of the shares issued by T4F Inversiones in Argentina must pay to the creditors the total amount of BRL 29.6 million. Since the contingency provision on the third quarter was BRL 39.1 million, we registered a reversal of approximately BRL 9.5 million in the fourth quarter related to discount obtaining the payment for this lawsuit. Thank you very much. Fernando will conclude our presentation.

On the last slide, you can see our events pipeline. On live music outdoor, we promoted last weekend GRLS! Festival in Sao Paulo, with the lineup including Little Mix, Kylie Minogue, Iza, Ludmilla, among others. On April, we will promote the ninth edition of Lollapalooza Brazil with already 190,000 tickets sold. In July, we will promote 2 shows of Taylor Swift on Allianz Parque, 1 already sold out. On indoor music, we have more than 60 shows already scheduled for the first semester, including important national and international acts like McFly, Roger Hodgson, Lindsey Stirling, City and Colour, Maria Bethania, Jorge & Mateus, Bruno & Marrone and Ney Matogrosso, among others. On sport events, we will follow promoting the major national motor sports categories with 12 Stock Car races and 8 Stock Car Light races. Concluding our presentation, I will comment about our perspectives for 2020. The end of 2019 marked the beginning of a transformation agenda for the company based on a full restructuring process that started on the second semester with the hire of new talents and an organization redesign. This new team had, as its first task, build a new medium- and long-term strategic planning where were defined for the company the road for improvement and transformation, including from business model revision and new markets penetration to deep revision of process and systems. Our goal is to evolve to a more digital data support and client-centered company. This way, we expect that the company growth be supported by an increased performance on segments that we already operate and also on correlated markets that we will operate through partnership and M&A that bring us assets and know-how that increase value to our portfolio. The perspective and negotiations underway indicate an improvement tendency on company business. Regarding recent events, Time For Fun monitors and follows daily with the competent authorities the development of the coronavirus in Brazil and in the other countries where it has activities. If there is any change in the present situation, Time For Fun will take the necessary measures with due information to all involved. Thank you for your attention, and our IR team is available to clarify any doubts. Thank you.