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

Good morning, and thank you all for joining our second quarter earnings presentation. I will start the presentation with an updated view on the impacts that the pandemic has brought to our business and the actions we are taking to mitigate its effects. Then Andre will comment on the company's operating and financial performance, explaining its effects and what we expect for the upcoming months as a result of the actions taken this quarter. And finally, I will conclude by presenting our overview of the current moment and how the company is positioning itself to resume operations in the post-pandemic scenario. As explained before in our last meeting, as a response for the pandemic, we created 2 multidisciplinary committees, being the first to crisis management and the second focused on assessment of business opportunities and content. Those fronts translate our main concerns at the moment: ensure the company's financial health, reducing expenses, operating more efficiently and taking measures to preserve our cash position as well as take advantage of the impact of the pandemic on the market to seek consolidation opportunities. We are confident that the prompt and diligent action on this front will enable us to come out of the crisis even stronger and well prepared than it was before. Amongst the actions taken by the management, I update and highlight the following items: 22% reduction in our staff head count in additional to the one did in the first quarter of the year; 17% suspension of employment contracts for 60 days; 45% total reduction in our staff head count in comparison with the last quarter 2019; negotiation for reduction in suspension of the venue's rents; suspension in several recurring contracts, such as maintenance, security, cleaning, among others, which represents savings of more than 50% in those costs; introduction of new policy in accounts payable, lengthening deadlines; reduction from 7 to 5 the number of members of the Board, a leaner Board will allow us to be able to act more quickly and focus on the company's main topics; focus on the rescheduling of the concert agenda; and finally, renegotiation of our debentures. Based on the actions taken, we had 36% of reduction on our recurring operational expenses compared with the second quarter 2019. Now Andre will continue with the presentation, commenting on the operational and financial performance.

Good morning. On Slide 5, I will briefly speak of our operational performance and its effects on its net revenue, gross profit and EBITDA. Due to the publication of decrees [ in the regions ] Rio de Janeiro and São Paulo, which prevented us from operating in our main business since the middle of March, this quarter, net revenue reached BRL 2.6 million, corresponding to convenience tax over ticket sales, naming rights and livestreaming sponsorships. As a result, we ended the first semester of 2020 with only the promotion of concerts from the first quarter of 2020, which were 11 events with 37,000 tickets sold and net revenue of BRL 2.5 million. Lollapalooza Festival first scheduled for April was rescheduled. Ticketing, food and beverage and venues operations net revenue reached BRL 1.1 million in this quarter, is the result of recognition income due to convenience tax over ticket sales. Sponsorship income reached BRL 1.5 million in this quarter, highlights on Jota Quest and Home Hour Popload Festival livestreaming. In sports segment, on July 25 and 26, we have started Stock Car and Stock Light Championship in Goiania. This year, exceptionally, due to the pandemic and the first time in its history, we will promote the event without public presence due to security protocols. For not being able to realize our main contents in this quarter, gross profit was negative in BRL 6.3 million versus negative of BRL 4 million in the second quarter of 2019. As Fernando said, in this quarter, we have focused our efforts on reducing expenses and reviewing processes in order to work more efficiently. Our SG&A decreased 36% in the second quarter, reaching BRL 11.4 million, mainly due to staff head count reduction and third-party service costs. Total operational expenses decreased 46% in the first semester of 2020 when compared to the same period of 2019 due to the one-off effects, such as write-off liability regarding the cease of the agreement with Bizarro in Chile, stated in other results with investments; and provision as probable loss, referring to the decision of the appellate court on the lawsuit against the company in Argentina, stated in other operational expenses of BRL 17.6 million, both registered in 2019, although in the same period of 2020, we held provisions equal to BRL 4.2 million, of which BRL 3.3 million in the second quarter of 2020, referenced to civil and labor lawsuits from previous years. As a result, the second quarter 2020 EBITDA was negative in BRL 15.5 million versus negative EBITDA of BRL 19.6 million in the second quarter of 2019. The adjusted EBITDA in the same period was BRL 12.2 million in the second quarter of 2020 and BRL 18.7 million in the second quarter of 2019. On the next slide, I'm going to comment on the financial result and the net income. The net financial result was negative in BRL 4.9 million in the second quarter of 2020 versus BRL 0.6 million negative in the second quarter of 2019, mainly due to: accounting adjustments of hyperinflation in Argentina with net negative impact of BRL 2.4 million, of which BRL 3.7 million were registered in other financial expenses and BRL 1.3 million as a positive effect in other financial income; and the reduction in income over financial investments due to pandemic impacting the front of the market. As a consequence, we ended the second quarter of 2020 with a net loss of BRL 25.6 million versus net loss of BRL 18.2 million in the second quarter of 2019. The adjusted net loss for both periods were BRL 22.3 million in the second quarter of 2020, and BRL 18.2 million in the second quarter of 2019. On the next slide, I will talk about the company's cash position. Regarding the cash flow, operationally, we consumed BRL 9.2 million as a result of cash consumption with administrative expenses and venue maintenance costs. In investments, we spent BRL 200,000 in CapEx maintenance. In new financing flow, we spent BRL 1.6 million in the payment of the lease liabilities related to long-term rental contract of our venues and BRL 3.4 million on interest related to the third issue of our debentures; and lastly, a positive exchange rate of BRL 9.8 million, mainly due to foreign currency appreciation. So we concluded the second quarter of 2020 with a cash position of BRL 218 million, total indebtedness of BRL 161 million, and as a consequence, a net cash position of BRL 57 million. Compared to the first quarter of 2020, gross cash position of BRL 222 million, a net cash position of BRL 59 million, we can observe an inexpressive cash consumption, reflecting the effectiveness of the measures taken by the management to preserve cash. It is important to remember that the renegotiation of the debenture concluded in May, which changed its profile from 6 installments of BRL 20 million per semester to 5 installments of BRL 24 million per semester with only one amortization due in 2020. It was important to this scenario. This gives us even more security to go through the pandemic and take advantage of the circumstance to selectively start a market consolidation movement. Thank you very much. Fernando will conclude our presentation.

On the last slide, we present our events pipeline that, due to the pandemic, were rescheduled. We continue to work with all content suppliers to maintain our main shows. According to communications from government and health authorities, there is a possibility to return to activities from fourth quarter 2020 onwards, with smaller events and reduced capacity following strict protocols. Over the events in our pipeline, we highlighted the ninth edition of Lollapalooza Brazil Festival with more than 190,000 tickets already sold and 2 Taylor Swift shows postponed to the first semester of 2021, which has the first of them already sold out. On indoor music segment, we highlight artists such as McFly, Maria Bethânia, and Jorge & Mateus and Bruno & Marrone, among others, with high occupancy rates. Important to say that from May on, we have launched livestreaming with Jota Quest shows and Home Hour Popload Festival, which featured artists like Emicida, Tulipa Ruiz, Duda Beat, among others. On sport events, in July, we have started Stock Car and Stock Light Championships. Exceptionally, due to the pandemic this year, season will not count with the presence of the public. The first stage was in Goiania on July 26, and the calendar with all stages of the season is already confirmed and disclosed. As we reported in the first quarter presentation, despite all the challenges we are facing, we keep the projection of a positive net cash position for the end of the year. Our company counts on a wide market experience and sustained relevant cash position, which makes me strongly believe that by the end of the crisis, we'll be stronger and mainly in position to lead the market consolidation process. Thank you very much for your participation. And from now on, the IR team is available to answer any questions.