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

Good afternoon, everyone. Welcome to our conference call for the first quarter of 2022 results. This quarter results confirm our expectations of strong reception in live entertainment after the pandemic. Leading our market, we promoted the first major live music event in Brazil since the beginning of the restrictions imposed to contain the effects of COVID-19. We are able to Lollapalooza Brazil without the obligation of wearing masks, thanks to the advances in the pandemic numbers. All patrons were fully vaccinated of -- with a negative result for the virus before the event. This addition of the festival was the biggest of its history in Brazil. There were 300,000 people between March 25 and 27, during 3 days to celebrate life. In addition to record audience numbers, we reached all-time high box office and sponsorship revenues of all additions of the festival. In total, the festival's net revenue topped its last additional in 2019 by more than 80%. These numbers reflect the pent-up demand we had already mapped during the pandemic. After 2 years of negative results, in this quarter, we achieved EBITDA of BRL 19.2 million against BRL 8.1 million negative in the first quarter '19. This positive results were due not only to Lollapalooza, but also because of our theater operations with the premier of The Addams Family and third-party tickets with INTI in Brazil and Ticketek in Argentina, in addition to well-controlled expenses in all our business. Further that, we opened sales to the first edition of Turá Festival and later for 2 sold-out Justin Bieber concerts. For a fair comparison, we will base our analysis on 2019, the last year without the effect of the pandemic. The variations against 2021 would not have a good basis of comparison amid the effects of COVID-19. In addition to the EBITDA previously highlighted, we recorded net revenue 48% higher than first quarter '19, which led us to a gross profit 51% higher than the same quarter. In SG&A, the adjustments we made brought a reduction of 16% compared to the same quarter in 2019, even with an inflation of 23% in the period, which means a real reduction of 32%. In the bottom line, for all these effects, we reversed net losses in both first quarter of 2019 and 2021 of BRL 34.3 million and BRL 11.5 million, respectively, to a net income of BRL 6.6 million this quarter. It was not easy to go through this period without events. We made sacrifices to prioritize the company's financial health, preparing it for this moment of resurge. And we are sure that all of this effort is now being rewarded, and we will have more to come during 2022. I will talk more about our prospects and upcoming events after our financial and operational results that will be explained by Diego, our Investor Relations Manager.

Thank you very much. As previously mentioned by Fernando, I would like to reinforce that to have a fair view, this analysis will compare first Q '22 versus first Q '19. Even in that year, we still did not have the effects of the COVID-19 pandemic in Brazil. We were prevented from promoting our content in most part of 2020 and 2021 due to the restrictions imposed to contain the effects of the pandemic. And for this reason, the basis of comparison would be weak. The information regarding to first quarter 2021 as well as its variation, are available on the earnings release and also in the presentation of this conference call, and can be used as a complement to the analysis when they are necessary. Despite seizing the operations of the venues, the number of sold tickets decreased only 8% as observed on Slide 5. This effect comes from the higher occupation of the theater with The Addams Family compared to The Phantom of the Opera as well as the promotion of Lollapalooza Brazil. The increase in the ratio between the number of tickets sold and the number of events held is part of the strategy outlined during the pandemic. This strategy focuses on promoting more relevant content in place of keeping the venues, which represented a constant flow of smaller events. With the decrease in the indicators of both mentioned, we counted a 48% increase in net revenue, totalizing BRL 178.1 million in first Q '22 against BRL 120.6 million in the same period of 2019. This is the result of the increase in the average ticket price, capturing the pent-up demand for live entertainment that we have met during the pandemic. Therefore, it increases the revenue of agent promotion to BRL 111 million, 30% higher than BRL 86.3 million in the first quarter of 2019. Additionally, in ticketing, food and beverage and venues operation, we recorded an increase of 82% in net revenue, reaching BRL 28.1 million against BRL 15.4 million in the first quarter of 2019. This number is composed mostly of food and beverage sales at Lollapalooza and The Addams Family as well as increasing sales of tickets for third-party events of INTI Brazil and Ticketek in Argentina. Finally, sponsorship revenue in first Q '22 was BRL 38.1 million, 102% higher than the first quarter of '19. On Slide 6, we show the effects of the company's strategy on gross profit and SG&A. The increase of gross profit in 51% against first Q '19 was driven by lower fixed cost of venues, the focus on events with better margins, such as festival and family events, and the diversification of our businesses with the acquisition of INTI. It exceeds the increase in net revenue, resulting in an expansion of 0.3 percentage points of gross margin. This increase occurred even with the realization in this quarter of costs already incurred by Lollapalooza in 2020 before the postponement of the event. We also see a 16% reduction in SG&A in the same period, which in real terms means a 32% gain in this indicator. With a smaller number of events with less on venues, we were able to operate the company with a lean structure, increasing the efficiency of our operations. The combination of healthier gross margins with controlled SG&A was also one of the goals of the company's new strategy. It will generate more continuous results with more constant margins than in past periods. In other expenses, we totalized a negative amount of approximately BRL 0.5 million in first Q '22. This number was composed of BRL 2.7 million of provisions for contingency and results of lawsuits, subtracted from approximately BRL 2.2 million of nonoperating revenues related to product modifications in sponsorship contracts. In the same period, this line recorded a negative value of BRL 18.2 million, a result mostly of provision for probable loss of a lawsuit in Argentina. Moving to Slide 7. The EBITDA of first Q '22 was positive in BRL 19.2 million, reversing the negative result of BRL 8.1 million in the first quarter of '19. In the adjusted view, BRL 2.7 million were excluded, while BRL 16.7 million was the amount excluded in the first quarter of 2019. In both quarters, the adjustments are related to agreements, lawsuits and contingency provisions recognized in other operating expenses, as aforementioned. After these adjustments, EBITDA totaled BRL 21.9 million in the first quarter of 2022, topping the same period of 2019 by 154% when it was BRL 8.6 million. In the next slide, we detail the financial results, negative BRL 10.9 million, representing an improvement of 58% over the number recorded in the first quarter of 2019 in the amount of BRL 19.1 million, mainly corresponding to the interest on the lawsuit in Argentina added to the hyperinflationary variation of BRL 5.3 million also in Argentina in that quarter. In first Q '22, the effect that leads to the negative result is the exchange rate variation of BRL 6.3 million. The company holds investments in foreign currency in Argentina and Chile [ as well as ] cash for the operations of those countries and in the United States for the payment of talent fees to international artists. We are negatively affected in the line of exchange rate variation when the dollar devaluates against the Brazilian real, which occurred in this quarter. Dollar has lost 14.6% of its value compared to our local currency from BRL 5.58 on the end of December 2021, to BRL 4.76 on last day of March 2022. On Slide 9, we present the net result. We reached a profit of BRL 6.6 million, reversing a loss of BRL 34.3 million in the same quarter of 2019. In the adjusted view, we recorded a net profit of BRL 9.4 million in first Q '22, reversing a net loss of BRL 4.8 million in the first quarter of '19. On the same slide, we highlight the adjusted view. In first Q '22, BRL 2.8 million related to agreements, lawsuits and contingency provisions were adjusted. In first Q '19, BRL 24.5 million of conditions provision for our lawsuit in Argentina was excluded. There was BRL 5 million related to the loss with investments of the association with Bizarro in Chile, both already net of their effects on income tax. Regarding the cash balance on Slide 10, we closed first Q '22 with BRL 55.3 million of net cash against BRL 95.8 million in fourth quarter '21. This reduction is mainly due to the increase of BRL 30.6 million in gross cash balance, driven by the data of Lollapalooza Brazil. In 2022, the festival was held on the last weekend of March. It caused a significant portion of accounts receivable from customers to be held for realization in the second quarter of this year when we will again generate cash. The relation between these indicators is clear on the right side of the slide, where we point out the working capital which decreased from BRL 105.7 million in the fourth quarter of '21 to BRL 59.9 million at the end of the first quarter 2022. Besides the accounts receivable previously mentioned, this variation comes from suppliers that also will be partially realized on the second quarter of 2022 in the advance of customers. In this case, the reduction is due by the promotion of Lollapalooza Brazil, where most of the tickets had already been sold in previous years. The negative working capital is inherent to our business model. We always go on sale of the content months before its realization. Therefore, the increase in working capital represents the delivery to our customers of pending issues that came from the pandemic, but the tendency is that it will increase again as we open sales for new events. The dynamic is especially beneficial for the company in an environment of high interest rates like the one we currently live in as we can finance ourselves with cheaper cash or keep it applied until the event. In the cash flow, we have consumption of BRL 36.2 million in first Q '22, while in first Q '19, the company generated BRL 58.9 million. The main effects were, in operating cash flow, we had a consumption of BRL 30.6 million this quarter, while in first Q '19, there was a generation of BRL 64.2 million. This consumption is mainly due to the promotion of Lollapalooza Brazil in the last weekend of the quarter as earlier mentioned. In 2019, on the other hand, Lollapalooza was held in the second quarter. So the effect on cash in first Q '19 were concentrated in the sale of tickets for the event. We generated strong cash without the payment of most costs. We recorded negative cash flow from investments in approximately BRL 700,000 resulting from investments in management software and evolution of our tickets platform INTI. This amount is in line with the previous periods considering that in the first quarter of '19, we had spent BRL 3 million related to goodwill and the acquisition of investments. The consumption recorded in the financing cash flow decreased by 77% in the first quarter of 2022 when compared to the first quarter of 2019 due to the lower payment of rental interest, with seizing off of the activities of our venues between 2020 and 2021. Additionally, there was a one-off effect of BRL 5 million with related parties in first Q '19 due to the exchange variation. Finally, there was negative exchange rate variation of BRL 3.3 million in the last quarter of 2022 due to the devaluation of 14.6% of the dollar from the end of December 2021, to the last day of March 2022. The company has investments and cash inferring currency, as previously described. When the dollar is devaluated, the conversion of this cash to real implies a reduction in the balance. I thank you all for the attention given, and I return to Fernando, who will conclude with the presentation of our pipeline.

Thanks, Diego, for the explanations. Setting aside our recent results a bit, I would like to ask everyone to move to the last slide of the presentation, where I will talk about our upcoming events. In early July, we will promote the first edition of Turá Festival at Ibirapuera Park in São Paulo with big names of Brazilian music, such as Alceu Valença, Emicida, Nando Reis and Zeca Pagodinho. The new production of the musical, The Addams Family, has proven to be even more successful than the first one in 2012. More than 50,000 people have already watched the Broadway production, and it will run until July and has received great reviews, both from the specialized press and from the public itself. In April, we announced the concert of Justin Bieber in São Paulo. After selling out in the first concept in a short time, we have opened a second date on September 15 that also sold out in a few hours. This will be the third time the singer will tour in Brazil. The other 2x were also produced by Time For Fun with great success. In addition, we will promote shows by biggest names of Brazilian international music, such as Jão and Zé Ramalho as well as Brazilian tour of McFly. The British band tour would take place [ before the pandemic ] and will be held this May, with an extra date in São Paulo after the successful sales of the first date. Capturing the results of the strategy adopted by the company during the pandemic, we are sure that we will be stronger. We are committed to deliver the best content to our audience. Our Investor Relations team is now available to answer any questions you may have. Thank you very much again, and have all a great weekend.