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

Good morning, everyone. Welcome to our results presentation for the third quarter of 2021. We would like to thank you all for your presence here today. The entertainment in Brazil has begun to experience the positive results of COVID-19 vaccination. Music events and theatrical productions are taking place across the country, allowing the public to gather around their favorite artists. In the last few weeks, we had a series of positive news, which directly reflect on our business, reinforcing our perspectives for the coming months. Firstly, São Paulo's State Decree published on October 27, which dismiss the obligation of minimum social distance in theaters, cinemas, bars and concert halls. These measures enables these venues to operate at their full capacity, while the use of masks and presentation of proof-of-vaccination success some establishments are still required. Additionally, during a press conference last week, the state government informed intention of removing the mandatory use of masks in open places from December 2021. Actions like this are possible after reaching the mark of 60% of the added population fully vaccinated. In São Paulo, the state government accounts for 100% of the population over 12 years old vaccinated with, at least, the first dose and more than 80% fully vaccinated, which contributes to the reduction in the number of cases, hospitalizations and deaths, resulting from COVID-19. These advances added to our movements during the period we were enabled to operate, while maintaining our financial health support the optimistic projections of the company for the resumption of our operations. We continue to see in 2022 and 2023, a pent-up demand that creates great opportunities in the entertainment industry. During the third quarter of 2021, however, we were still prevented to operate our major events due to restrictions to contain the dissemination of the coronavirus. Within this framework, the company recorded total net revenue of BRL 5.6 million, which means an increase of 105% when compared to the same period of 2020, as highlighted on Slide 5. Part of this number, BRL 1.2 million regards to events promotions highlighting the operation of our theaters in Buenos Aires and São Paulo during this period. In Buenos Aires, the theater was prevented from operating for most of the second quarter due to the second wave of COVID 19 in Argentina and reopened in mid-July. The Teatro Renault in São Paulo hosted a show Charlie and the Chocolate Factory, which has been running since September. This is a scenario 27% better than third quarter '20 with only the promotion of 2 stages of Stock Car before the sale of Vicar. The ticketing, food and beverage and venues operations, we recorded an increase of [ 323% ] compared to the same quarter of the previous year, reaching BRL 4.2 million against BRL 1 million in 2020 in the wake of the relaxing of restrictions in all geographies that we operate. As a result, INTI recorded revenue of BRL 1.5 million, while our offshore operations recorded BRL 2.6 million, mostly from Argentina with reopening of the theater in July as well as events outside the [ theater ] sold through our ticketing operation in that country. On Slide 6, it's possible to visualize the positive effects of the actions taken to contain costs in the period without events. Gross profit in the third quarter '21 was negative by BRL 0.1 million against BRL 9.1 million negative in third quarter '20. The positive variation of 99% is mainly due to the operation of theaters in Argentina and Brazil, as well as the ceasing of the operation of our venues in São Paulo, Rio de Janeiro and Belo Horizonte, which reduced the loss in the operations line by 77% of ticketing, food and beverage and venues compared to last year. On the same slide, we analyzed the SG&A for third quarter '21, which increased by 39%, resulting in a negative amount of BRL 16 million, higher than the BRL 11.5 million recorded in third quarter '20. It's important to point out that within the value of this quarter, there are one-off effects in the amount of BRL 6.9 million, comprising the sum of BRL 5.1 million referring to the write-off of remaining contracts for the venue in São Paulo, which operations we ceased in March and BRL 1.8 million adjustment in the amount of the less installments received from sale of Vicar. Removing this amount, we would have a total SG&A of BRL 9.1 million, which represents a drop of 43.1% when compared to the third quarter of '20. This result is due among other factors, the 36% reduction in personnel structure in Brazil and Argentina and the renegotiation of all service provision contracts, resulting in their reduction, cancellation or suspension. In other expenses, the negative amount of BRL 6.7 million in third quarter '21 is mainly composed by provisions for contingency and the results of legal proceedings, highlighting the renegotiation of tax liabilities within the scope of PERSE, the government program for the recovery of the event sector. The reversal from positive to negative result in this quarter is also due to one-off recording of positive BRL 15.3 million in the third quarter of 2020, referring to the gain from the sale of the Vicar. Moving on to Slide 7. We see that in the official view, the EBITDA in third quarter '21 was negative in BRL 21.2 million, worse than the BRL 3.1 million, also negative in the same period last year. We emphasize here that the one-off factor described on the previous slide distorts comparability requiring the analysis of adjusted EBITDA, which eliminates the nonrecurring effects of the results. In the adjusted view, we had an EBITDA of BRL 7.4 million in third quarter '21 against BRL 15.4 million, both negatives registered in 2020, which represents an improvement of 52% in this indicator. I would also like to point out that this is the best EBITDA since first quarter '20, which marked the beginning of the restrictions imposed to combat the impacts of the pandemic. It demonstrates the consistent evolution of the company's indicators. On Slide 8, we detail the adjustments that were applied to the results. In the adjusted view, additionally to the points above mentioned, we excluded the negative result of BRL 6.9 million referring to agreements, court decision and contingency provisions for lawsuits recognized in general and administrative expenses. Of this value, BRL 3.3 million are related to renegotiation of tax liabilities under PERSE and another BRL 3.3 million related to the provision for probable contingency for 2 lawsuits in Brazil, whose movements occurred this quarter. On the next slide, we detail the financial results positive by BRL 3.7 million, which represents an improvement of 175% compared to the amount recorded in third quarter '20 of BRL 4.9 million. This improvement comes mainly from the exchange rate variation in the amount of BRL 9.8 million better in third quarter '20 compared to third quarter because of the 9.6% appreciation of the dollar quoted on June 30 at BRL 4.97 and on September 30 at BRL 5.45. This positive result and particularly offset by the [ BRL 1.3 million ] increase in interest on debentures due to the 4.25% points increase on the Brazilian basic interest rate that indexes our debentures going from 2% per year at the end of first quarter '20 to 6.25% per year at the end of third quarter, added to the higher cost of debentures, which their reprofiling in November 2020. As a result of this, the effects aforementioned, we see on Slide 10 and that the net loss in third quarter '21 of BRL 18.7 million was 44% higher than the amount recorded in the third quarter '20. However, as explained in the EBITDA section, positive one-off factors during the third quarter of 2020 and negative ones in 2021, distort the analysis from the point of view. Excluding these factors, an adjusted net loss of BRL 4.9 million in third quarter '21 was obtained. And it is 81% better than the loss of BRL 25.3 million recorded in third quarter '20. Referring to cash flow on Slide 11, we ended the third quarter 2010 with BRL 200.7 million in gross cash balance versus when BRL 194.4 million in second quarter '21. The main effects were the $1.3 million increase in operating cash consumption in the period is due to the one-off effect of the refund for the cancellation of remaining contract at São Paulo venue. If this effect is disregarded the operating cash flow for the period would be close to 0 as a result of the partial resumption of events. Cash flow from investment was positive in the quarter due to the receipt of the last installment of the sale of Vicar, added to investment in management software and evolution of INTI in line with previous quarters. This quarter's cash flow from financing activities is largely composed by the payment of lease interest liabilities with no interest payment on debentures, which are disbursed together with the amortization of principal in May and November of each year. Finally, the exchange variation recorded at a positive BRL 6.2 million, the result of depreciation of investments and cash in foreign currency in the quarter with the variation of the dollar mentioned above. And now we ask every when to move to the last slide, where I will talk about our perspectives. As we mentioned at the beginning of this presentation, the advance of vaccination and the relaxation of restrictive measures allow us to resume production of our content with full capacity in 2022. Given that, at the end of October, we announced the lineup for the ninth edition of Lollapalooza Brazil, with sales restarting on November 18 of this year. After a postpone in 2020 and rescheduling in 2021, the festival takes place again in March 2022 with around 70 artists, such as Miley Cyrus, The Strokes, Foo Fighters, Doja Cat, Alessia Cara, Pabllo Vittar, Detonautas, Alok e Alessio, among other national and international artists. In theatrical production, we highlight here the success of the musical, Charlie and the Chocolate Factory produced by a third party at Teatro Renault. We are in the production phase for the musical, The Addams Family, which is scheduled to premiere in the first quarter of next year. We keep in touch with national and international artists to recompose and expand our events pipeline. As the numbers of the pandemic cool down, we see greater availability of artists to perform in South America. Thus, we hope to soon announce new attractions for 2022, reaffirming our commitment to bringing our public the best content in the best geographies. The Investor Relations team is from now on available to answer any questions you may have. Thank you very much again, and good day to everyone.