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

Good morning, and thank you for joining our third quarter earnings presentation. I am with Andre, our CFO and IR Director, so we can inform you all the update scenario faced by our company and talk about the progress we had in our strategic agenda. We will also comment the company's financial performance, impacted by actions we took to mitigate the effects of the pandemic. The last 2 quarters were the most challenging in the company's history, given the impact generated by the COVID-19 pandemic in the economy and, particularly in our side. During the period, we were unable to operate. We have focused our efforts so we could reorganize our operation and set up movements aligned with our strategic plan. In our previous conversations, we mentioned the creation of committees that could respond quickly to what we consider our main concerns, expenditure restraint in order to preserve our cash position and simultaneously the constant evaluation of business opportunities. In these directions, we could already identify this quarter the positive return of some actions implemented at the beginning of the year. First, the Crisis Management Committee has been key to taking timely measures to reduce expenses and preserve our gross cash balance, keeping it over to BRL 110 million with almost BRL 90 million of cash position, net of financial debt. This position mean slight reductions of BRL 6 million and BRL 7 million of gross cash balance and cash position, net of financial debt, respectively. Among several implemented actions, it is worth mentioning the definition of a lighter and flexible organizational structure room, variable according with the demand of our contents. Additionally, we renegotiated contracts of various kinds and executed layouts reflected together in a 31% reduction in our recurring operating expenses compared to the third quarter '19. Another point to be observed is that we are in negotiations to reprofile the debentures that Andre will explain in more details later. Related to our committee for new business opportunities and content, we concluded strategic deals in line with the securing movements mapped in our strategic planning. Advancing the goal of pivoting to a more digital, diversified data-driven and focus on customer experience as company, we acquired the majority stake in INTI, which is a technology company focused on ticket sales for entertainment and culture sectors. With this movement, we now operate with our own technology, which will allow us to efficiently develop new features as is needed. The acquisitions of INTI is also the first step towards consolidating the tickets market. In this context, it's important to mention the recent decision of the superior justice card that changed its previously understanding and considered Lego the collection of convenience fee by the ticketing companies, reinforcing our tests and giving us legal safety to continue with our project to consolidate this market. Finally, it's important mentioning the sale of our shares in Vicar, the company responsible for promoting Stock Car, which was under T4F control since 2006. Such divestment, in addition to strengthening our cash position will support the plan of razor presence in festivals and tickets, seeking higher recurrence of revenues and reserves as well as attracting growing market niches, such as electronic music, gig culture and esports. Now Andre will continue with the presentation commenting on the operating and financial results.

Thank you, Fernando, and good morning to everybody. With the maintenance of the decrease that prevented us from resuming our operations, we didn't promote our content throughout the third quarter. Thus, we remain focused on controlling expenses, capturing efficiency gains, reserving our cash and keeping attention to new business opportunities. Let us start commenting on net revenues on Slide 5. The revenue of BRL 1 million in box office, food and beverage and venus operation in the third Q '20 was basically composed by the sale of tickets from 145 lives from third-party events in Argentina, which contribute with BRL 700,000, in addition to revenues from ticket sales to adjacent markets made by recently acquired INTI in the amount of BRL 300,000. The net revenue of BRL 1 million in event promotions, and BRL 800,000 in sponsorship came from the promotion of the first 3 stages of Stock Car performed before the sale of our stake in Vicar, the categories promoter, the promotion of the stages were possible due to the release of the races and take place without the presence of public. This way, we achieved a revenue of BRL 2.7 million in the third Q '20. Our costs, which include maintenance expenses of our venues and third-party services, were reduced by 70% in the third Q '20 comparing to the third Q '19. Although this reduction, our gross profit demonstrated on Slide 6 was negative in BRL 9.1 million against BRL 15.4 million positive in the third Q '19, mainly driven by the promotion of Stock Car stages with negative results. Comparing the third quarters of 2020 and 2019, the SG&A expenses decreased by 31%, reaching BRL 11.5 million, result of our initiatives of expenditure constraints and recurring expenses reduction. Among the most expressive reductions, we highlight 32% in people expenses, 70% in third-party services and 51% in general expenses. On other operational revenues and expenses, we had a positive effect of BRL 15.3 million in the third Q '20 as a result from the sale of our shares in Vicar. A negative result of BRL 3 million by the provision of contingencies related to civil and labor lawsuits from previous period. In the third Q '19, we had only the negative impact of contingencies provision at a total of BRL 4.2 million. Consequently, the third Q '20 EBITDA was negative in BRL 3 million versus negative EBITDA of BRL 1.3 million in the third Q '19. Adjusting the nonrecurring effects, the third Q '20 EBITDA was BRL 15.4 million negative against BRL 1.6 million positive in the same period of the previous year. The accumulated EBITDA in the 9 months of 2020 was negative in BRL 23.6 million against BRL 29 million, also negative in 2019. On Slide 7, we presented the net financial result of the third Q '20, which was negative in BRL 4.9 million against a negative result of BRL 6.2 million in the third Q '19. The 2020 result was impacted by the lower CDI, the interest rate that index both our debts and investments in the period, reflecting in smaller interest over our debts as well as over our financial investments. Because of all the effects mentioned above, we closed the third Q '20 with a net loss of BRL 13 million compared to a loss of BRL 13.2 million in the third Q '19. The adjusted net loss for the same periods were BRL 28.5 million and BRL 7 million, respectively. Passing on to Slide 8, we will comment on the company's cash flow. The main variations on the third quarter '20 cash flow were, in relation to the operational cash flow, the variation from BRL 9.2 million negative in the second quarter of 2020 to BRL 19.5 million negative in the third quarter of 2020 was given by the receipt at the second quarter of values from revenues earned in previous quarter when we were still operating. The investment cash flow was positive BRL 9 million in the third Q '20 result of BRL 12.7 million received from the cars sales first installment plus BRL 3.3 million paid until the moment for INTI's acquisition. The variation in the cash flow financing activity was driven mainly by the payment of lease liabilities related to long-term rent contracts of our values. These values were 60% smaller than the ones presented on the third quarter '19 due to partially payment during the pandemic period. Last of all, the foreign exchange variation over a broad cash investment position generated a positive impact of BRL 4.8 million. Consequently, we closed the third Q '20 with gross cash balance of roughly BRL 212 million, total debt of BRL 161 million, cash position net of financial debt of BRL 90 million and considering the accounting effects of IFRS 16, a net cash of BRL 57 million. I would like to highlight the positive reflects of our efforts to preserve our cash position during the pandemic. It can be seen by comparing the current position with the past balances. In the third quarter '20, we had a gross cash balance of BRL 218 million, cash position net of financial debt of BRL 97 million and a net cash of BRL 57 million, considering the effects of the lease liabilities from the IFRS 16. Concluding, I emphasize the material fact recently released by the company about our debentures. As mentioned by Fernando, we are in advanced negotiations to reprofile them. Conclude the operation, we will have a debt with 4 years terms, 18 months of grace period and 6 semiannual installments of BRL 20 million each. This will allow us more ease to continue our investment plans. Thanks for everybody's attention. I would like to call back Fernando to the final considerations.

Thank you, Andre. We now move on to the last slide to talk about the expectation of resumption and final considerations. According to the government and health authorities and following the recovery plan, since the beginning of October, it's already possible to hold events in São Paulo with social distancing and capacity reduced to 60% and limited to 2,000 people. However, we understand that it's not yet economically viable to promote content under such restrictions. This, we project the resumption of our indoor shows for the beginning of the first quarter 2021. Given that, the trend we are seeing point international artists will take the summer in the northern hemisphere to deliver concerns not performed during the pandemic, we expect the floors international artists to South America to intensify from the third quarter of 2021. For this reason, we rescheduled Lollapalooza to take place on September 10, 11 and 12 of next year. Relative to family and theater contents, we are in final negotiations to return to operate them from the first quarter '21. Concluding our presentation. After 8 months, our turbulence and unpredictability, we find ourselves confident about the company's prospects. As informed, we have successfully completed the first steps of a long journey of transformation, what, combined with our industry skills and financial strength, reinforces our tests that will be the consolidating agent of the South American entertainment market. Thank you very much for your participation. And from now on, our IR team is available to answer any questions.