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

Good afternoon, everyone. Welcome to our results presentation for the second quarter of '21. Together with Andre, our Chief Financial and Investor Relations Officer, we would like to thank you all for your presence here today. After almost 1.5 years in which the live entertainment industry had restrictions imposed to combat the impacts brought by the COVID-19 pandemic, the last months set an inflection point and the recapture signs, which all of us were glimpsing about began to come true. At the United States and the United Kingdom, our reference in terms of vaccination, huge music festivals started to come back with highlights to Lollapalooza Chicago, which gathered almost 400,000 people at 4-day events. In Brazil, the bigger offer of vaccines contributed to anticipate on a relevant way the vaccination calendar all over the country, and we can clearly see the results of those actions. Health care systems with -- had their ICU units at [indiscernible] average of cases. And thus, by COVID-19 are at the lowest registered level since January of this year when the new contamination curve began. Although we have still a very high level, this reduction corroborates with the pandemic's decrease perspectives. At this moment, the world's attention is focused on Delta variant, first identified in India. It swapped rapidly through the world. Although it's described to be more transmissible, regions with higher vaccination rates as the United Kingdom have seen the number of cases raised significantly yet with less gravity with impressive reduction on the number of cases in that. These facts reinforce our expectation on the vaccine. In that regard, we emphasize Datafolha's research, which shows that 94% of the Brazilian population is already vaccinated or intend to do so, leading us to a better level when compared to the United States, for instance, where despite the abundant offer of vaccines, significantly amount of the population refuse, conscious and convicted to get immunocytes. This scenario reinforces the company's conditions on leading returning process of major live music concerts in Brazil. Despite of the long period that we've been unable to operate, our cash balance is still comfortable, close in the second quarter of 2021 of net cash balance in BRL 61 million and a gross cash balance of more than BRL 194 million. Besides cash numbers, the actions are implemented by the company to stand up for a long period of inactivity are still generating results when compared to the second quarter of 2020, period that we weren't operating as well. This year, we have had reductions of 54% on costs and 26% on SG&A, which led us to the best adjusted EBITDA since the first quarter of 2020 and the best adjusted net income since the fourth quarter of 2019, being the last quarter that we promoted our contents. Reinforcing our positive perspectives. In May was published the Law #14 148, which instituted PERSE emergency program for the entertainment sector return, whereby entertainment companies, being by far the most affected by the pandemic, have special conditions on financing their taxes liabilities as well as benefits to provide the return of its activities such as exception by limited time of federal taxes. Andre will now give you more details about the financial and operating results for this quarter and in sequence, I will be back to annunciate my final considerations.

Thank you, Fernando. Good afternoon, everyone, and thank you for joining our results call for the second quarter of 2021. Despite the clear evolution of the pandemic numbers, we were still unable to operate our major events this quarter. However, as commented by Fernando, we are getting closer and closer to the return. This quarter, we saw an increase in INTI's revenues mainly due to reopening of museums, while our revenues in Argentina were lower than in previous periods due to the theaters closure during most of this quarter. Thus, we can see on Slide 5 that the company's net revenue in the second quarter of 2021 was 41% lower than in the same period of 2020, a reduction concentrated in the sponsorship line whose revenue recognition was suspended due to the pandemic. In the other lines, we see growth when compared to the previous year. Even without promoting events, we recorded a revenue of BRL 200,000 in the event promotion line, referring to participation in third-party events held at our theater in Buenos Aires before its temporary closing on April 15. In the line of ticketing, food and beverage and venues operations in the second quarter of 2021, we recorded net revenues of BRL 1.4 million, an increase of 26% when compared to the same period of the previous year. This revenue was made up of the sale of approximately 215,000 tickets to events of third-party promoters through each, which generated around BRL 600,000 in revenue. Also, we generated BRL 300,000 from the sale of around 37,000 tickets and the holding of 10 third-party events in our theater in Argentina at the beginning of April. Additionally, we recorded BRL 500,000 with the rent of our production structure in Chile. On Slide 6, we can see the results generated by seizing the operations of venues in the company gross profit, which improved by 60% when compared to the second quarter of 2020, despite net revenue have decreased by 41% in the period. This improvement is a direct reflection of the 54% reduction in costs because of the closure of our venues in Rio de Janeiro, Belo Horizonte in São Paulo. Additionally, we can see on the right side of the slide that the SG&A in the second quarter of '21 was 30% lower than in the same period of 2020. On Slide 7, we can see the evolution of the SG&A over the time, and it's possible to notice its downward trajectory since the beginning of the pandemic, evidencing the efforts of the company's management in strict control of expenses. Compared to the fourth quarter of 2019, the last period in which we fully operated, this item was reduced by 68%. Emphasis on the 65% reduction in the personnel structure in Brazil, meaning 2 waves, 1 of 45% during the first quarter of 2020 and the other of 36% in the first quarter of 2021. With this, we reduced the operational structure, which we are not using now with a view to implement a flexible organizational structure adaptable to demand. Additionally, we reduced Argentina's workforce by 25% through a voluntary resignation plan and renegotiated all our service contracts. The result of other operating income and expenses was 11% better than in the second quarter of 2020. In both periods, the result was mostly composed of provisions for contingencies and results of lawsuits. In the second quarter of 2021, the negative result of BRL 2.8 million was almost entirely composed by the contingency provision for a civil case in Argentina. As a result of all these effects, we've seen on Slide 8 that EBITDA for the second quarter of 2021 was negative by BRL 12 million in the official view and a negative of BRL 9.7 million in the adjusted view against BRL 15.5 million and BRL 12.2 million, both negative respectively in the same views in the second quarter of 2020. This means an improvement of 22% in the official view and 21% in the adjusted view against the same period of last year, representing the best results recorded since the first quarter of the year last, which was the last one we operated our major contents. Moving on to Slide 9. We see an improvement of BRL 2.9 million in the net financial results for the second quarter of 2021 versus the same period of 2020, which corresponds to an improvement of 59%. This is mainly due to the foreign exchange, monetary and hyperinflationary variation, better by BRL 3.9 million, due to the receiving the return of fees paid in advance to international artists, return at a higher exchange rate than the paid in 2020 with a difference of BRL 3.6 million recognized as foreign exchange variation. This effect was partially offset by higher financial expenses in the period, resulting from a 2 percentage point increase in the Brazilian basic interest rate from 2.25% per year at the end of June 2020 to 4.25% a year at the end of June 2021. With that, we see on Slide 10 that we closed the second quarter of 2021 with a net loss of BRL 14.6 million in the official view and BRL 12 million in the adjusted view, which represents, respectively, gains of 43% and 46% compared to the loss of BRL 25.6 million in the official view and BRL 22.3 million in the adjusted one. recorded in the same period of 2020. The adjustment applied to the result of both quarters as well as the EBITDA come from provisions for contingencies and the result of lawsuits. On Slide 11, we present the cash flow from the second quarter of 2021 compared to the cash flow for the same period in 2020 in the quarter immediately before. In free cash flow, we recorded a total consumption of BRL 10.6 million against a consumption of BRL 4.6 million in the same period of the previous year and a generation of BRL 3.1 million in the immediately previous quarter. This difference is mainly concentrated in the foreign exchange variation item. Given that this quarter we had a devaluation of cash and cash equivalents in foreign currency, while in the other quarters, the opposite occurred. Below, we highlight the main effects that made up cash flow in the second quarter of 2021. In the operating cash flow, we recorded a result in line with the immediately previous quarter, demonstrating the continuity of the actions to contain expenses implemented by the company, which is highlighted when we compare to the second quarter of 2020 when such actions began to be implemented. Compared to this period, we had a 53% reduction in cash consumption. In investments, the effect comes from applications in management software and from the evolutions of INTI platform. The increase in cash flow from financing activities by about 49% in is mainly due to the payment in May of interest on debentures in the total amount of BRL 3.2 million, partially offset by the lower level of amortization of lease liabilities in a total of BRL 1.4 million lower than the immediately previous quarter, a direct result of the closure of our venue in São Paulo in March. In comparison with the second quarter of 2020 the 39% decrease in this line is due almost entirely to the difference in the amortization of lease liabilities, given that the interest on debentures was also paid in that quarter. Finally, as I have anticipated, the main difference was due to exchange variation, positive by BRL 9.8 million in the second quarter of 2020 and BRL 10 million in the first quarter of this year. In the second quarter of 2021, however, this line was negative by BRL 2 million, even with the positive result of BRL 3.6 million in the exchange rate difference between the payment of advanced fees to artists in 2020 and the receipt of the return in this quarter. On the next slide, we can see the evolution of the company's cash balance. As a result of the efforts to preserve it, we ended the second quarter of 2021 with gross cash balance of $194 million, a net cash of BRL 61 million, giving us the comfort to put in course all projects for the resumption of our activities. I would like to thank everyone for the attention and giving back the floor to Fernando to make his final remarks. Thank you very much.

Thank you very much for your explanations, Andre. I ask everyone to move now to last slide where we will talk about our perspectives. Almost 2 years after the Phantom of the Opera season at Teatro Renault, we are pleased to announce that the venue will host a new musical. The theater will be leased to promote the show, Charlie and the Chocolate Factory, which will go on sale in the next few days and will debut in September. Our theater was purely adapted to the current sanitary protocols, providing all the safety to that the public can enjoy the spectacles again. Subsequently, as of the first quarter of 2022, also at Teatro Renault, we will present a rerun of the Adams Family, a show that was first presented here in 2012 with great success of public and critics. The return of the theater events will be just the beginning. The success of the North American edition of Lollapalooza raises our expectations for the Brazilian edition, which will take place at the end of March 2022. We continue to make our efforts to deliver next year a broader platform of festivals to our clients. Conversations with artists aiming to rebuild our events pipeline are increasingly advanced. We hope to soon be able to announce new attractions, bringing to our audience the best content in the best geographies. Our Investor Relations team is available to answer any questions. Thank you one more time, and a good afternoon to everyone.