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

Good morning, and thank you for joining our first quarter earnings presentation. In the first part of this presentation, I will comment how the pandemic has impacted our business and which measures we are taking to mitigate its effects. Following that, Andre will present the company's operational and financial performance during this quarter. During the last months, we have proceeded with the execution of our strategic plan with the development of new festivals, among which we highlight the new GRLS! festival in March held in the Latin America Memorial in São Paulo; the review of internal processes, aiming performance gains; and the enhancement of our pipeline events, among others. As we explained in our last conference, after a challenging year for the company and for the entire entertainment industry in Latin America, we have projected our resumption for 2020 based on the improvement of the economic scenario with an increase in the flow of artists to the region and the consequently positive impact in our operations. Nevertheless, we are experiencing a unique moment. This atypical scenario due to the new coronavirus is leading to the largest crisis of the last 100 years, and it's deeply impacting the marketing and particularly the entertainment industry. The fast spread of the pandemic caused the suspension in several sectors, weakening the global economy. In this context, due to government and/or states decrees, we were forbidden to operate. Consequently, a significant part of our events was postponed. As a result of the reduction of the company's activities in the following months, we have implemented several measures in order to mitigate the negative impacts of the pandemic on our operations, such as 30% reduction in our staff headcount; suspension of employment contracts for 60 days to 70% of the remaining staffs as the company is benefiting from the package of measures established by the federal government; suspension in several recurring contracts, such as generator maintenance, security, cleaning, among others, which represent savings of more than 50% in these costs; introduction of a new policy in accounts payable lengthening deadlines; negotiation for reduction or suspensions of our venues' rents, focused in the preservation of our concert agenda by rescheduling it; and renegotiation of the ventures. Reinforcing our commitment with the health and well-being of our employees and the community, we are following the recommendations, not only from the World Health Organization and from the Ministry of Health, and we have adopted the home office policy to our employees. Now Andre will continue with the presentation, commenting on the operational and financial performance.

Good morning. In Slides 4 and 5, we can observe our operational performance and its impact on our net revenue. We concluded the first quarter of '20 with the promotion of 11 events with 37,000 tickets sold and revenue of BRL 32 million. The significant decrease in number of events and tickets sold is due mainly to the fact that we did not promote any content in family and theater segment in the first quarter of 2020. Comparatively, in the first quarter '19, we have promoted the musical The Phantom of the Opera with 122 presentations and 97,000 tickets sold. On the live music segment, the reduction of 50% in the number of events was due to the postponement of 12 indoor concerts because of COVID-19. The reduction of 84% in tickets sold in the first quarter '20 was a consequence of the presentation of only the GRLS! Festival in the outdoor segment. While in the first quarter '19, we presented 4 shows of Paul McCartney's tour. As we can see on Slide 5, due to the lower number of outdoor concerts, postponement of indoor and tour concerts and the no presentation of events in theater segment, the net revenue in events promotion decreased 92% compared to the first quarter '19, reaching BRL 6.5 million. The reduction of 24% in ticketing, food and beverage and venues operation, reaching BRL 11.8 million in the first quarter '20, is a result of less activity in event promotion and cancellation of opening sales of new contents under mining tickets result. In sponsorship, net revenue decreased 25%, reaching BRL 14.2 million. This result was affected by the postponement of Lollapalooza Festival to December of this year. On Slide 6, it is possible to see that the gross profit recorded in the first quarter of '20 was BRL 6.1 million, 69% lower than the first quarter '19 as a consequence of the postponement of Lollapalooza Brasil Festival, performance below our expectations in ticket sales of the live music segment and non-presentation of events in the theater segment. The SG&A expenses increased by 22% in the period due to the cost of layoff of the employees and the hiring of new talents that occurred during the second semester of '19. Total operation expenses, however, reduced 58% due to the nonrecurring effects presented in the first quarter '19, such as the write-off liability regarding the termination of the agreement with Bizarro in Chile as the provision -- as probable losses referring to this decision in Argentina. As a result, the first quarter of '20, EBITDA was negative BRL 5.1 million versus negative EBITDA of BRL 8.1 million in the first quarter of '19. On next slide, I'm going to comment on the financial result and net income. The net financial result was negative BRL 3.6 million in the first quarter of '20 versus a negative BRL 25.7 million in the first quarter of '19, mainly due to nonrecurring effect in the first quarter '19 of the provision of BRL 17.3 million related to interest on arrears of the lawsuit in Argentina; the accounting adjustment of hyperinflation in Argentina with a net negative impact of BRL 1.2 million, of which BRL 2.2 million was registered in other financial expenses, and BRL 1 million as a positive effect in financial income. As a consequence, we ended the first quarter of 2020 with a net loss of BRL 14.1 million versus net loss of BRL 34.3 million in the first quarter of '19. On the next slide, I will talk about the company's cash position. Regarding the cash flow, operationally, we generated BRL 13 million as a result of anticipated receipt of sponsorship and low cash consumption given that we promote lower number of outdoor events in the period. In investment, we spent BRL 400,000 in CapEx maintenance. And in the financing flow, we spent BRL 4.2 million on the payment of lease liabilities related to the long-term rental contracts. So we concluded the first quarter '20 with a cash position of BRL 222 million, total indebtedness of BRL 164 million, and as a consequence, a net cash position of BRL 59 million. It is important to say that the renegotiation of the debenture concluded in the beginning of May give us comfort to the company to go through this moment of turbulence that we are living. Thank you very much. Fernando will conclude our presentation.

On the last slide, you can see our events pipeline scheduled for the second half of the year. We concentrated our efforts on the preservation of our main events, which is subjected to changes due to the pandemic development and competent authorities recommendations. On live music outdoor, we have postponed the ninth edition of Lollapalooza Brasil from April to the first week of December. We guarantee the 3 main headliners and 90% of the other performers. The event has already more than 190,000 tickets sold. Additionally, the 2 Taylor Swift concerts initially scheduled for July were postponed to the first semester of 2021. In November, we expected to promote another addition of the Popload Festival. On indoor music segment, which concentrates our highest volume of concerts, we worked to reschedule more than 40 concerts from the first to the second semesters of 2020, emphasis on relevant national and international artists, such as McFly, Maria Bethânia, Jorge & Mateus, among others. Moreover, on sports events, we expect to promote from the second half of the year the new season of Stock Car and Stock Car Light championships. Furthermore, in order to make efforts in a more efficient way, we have developed 2 multidisciplinary committees. The first is focused on crisis management with the goal of acting an implementation and permanent tracking of actions that aim to mitigate the COVID-19 effects on our operations. The second one is focused on the identification and evaluation of new business opportunities and contents with the purpose of stepping out stronger of this crisis. In the possibility of providing a guidance of results due to the high uncertainty, it's important to mention that we have a strong cash position, BRL 222 million,with net cash of BRL 59 million. Despite of all challenges that we are facing, we still project to the end of this year a positive net cash position. Thank you very much for your participation. And from now on, our IR team is available to answer any questions.