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

Good morning. Everyone, and welcome to our conference call for the second quarter of 2022. The result we present this quarter highlight the effect of the movements carried out during the pandemic. We acted quickly to contain costs and preserve cash, but also pivoted the company to operate in an asset-light model. These structures generate healthier and more constant results even in periods without promotions of major events as the second quarter. The first move was a deep review of our portfolio, giving away assets that are part of our history, but no longer represented the best positioning for the company. At the same time, we have acquired or developed new assets. These additions better position us in the postpandemic live entertainment markets. Thus, we acquired INTI, which is now our ticketing platform. This new one replaces the previous ticket platforms we used under license. Additionally, to giving more recurrence to our business, we now own the code of our technology. This fact gives us the possibility to control the development road map to cover efficiently our customers' needs. On top of the operational benefits, we are reinforcing our presence in the tickets market. We now operate third-party tickets throughout INTI in Brazil and Ticketek in Argentina and Chile. Additionally, we strive to expand our festival platforms. I highlight the most recent case, Turá Festival, whose first edition was launched on July 2 and 3rd with an audience of 26,000 people in 2 days of festival. The event was such a success, bringing up a unique experience to the audience, and reinforcing our idea of organic expansion of this market. Combining our experience and high efficiency, we generated a positive result in the first edition with a much lower investment than it would be if we acquired an already established brand. Another segment that we further explored was Family and Theater Events. Even they are seasonal, they also bring more recurring results. These events also increased our customer share of wallet, as they are interesting content for several generations with the same family. To reach this goal, resumed producing our Broadway content with Addams Family. On top of that, we took the first step towards immersive experience coproducing Warner Bros. Parque do Terror, which will premier in early September. To support these strategic moves, we are also implementing structuring events with less venues and consequently focusing on a smaller number of bigger events, we adopted a flexible demand-driven structure. It reinforces the linkage between our costs and revenues, which reduces the results variation. Therefore, even without any major events this quarter, we generated gross profit of BRL 22.3 million with a gross margin of 44.5%. On the other hand, in the same quarter of 2019, even before the pandemic, we had a loss of BRL 4 million. The review of the structure and the company's efforts in controlling expenses caused the SG&A of the second quarter to be 36% lower than the same quarter of 2019 without discounting the inflation for the period. After this all, we counted in this quarter an EBITDA of BRL 9.4 million in the official view and BRL 13.6 million in the adjusted one. Additional to the actions listed above, we have extended our debt profile. And with the resumption of our activities, we ended this quarter with a net cash of BRL 403 million, which is 47% higher than the same period of 2019 even after almost 2 years without operating. Now Diego, our Investor Relations Manager, will detail the financial and operating results of this quarter. And then I will return to talk about our perspectives and upcoming events.

Thank you, Fernando. To have a fair view of the results evolution, as in the previous quarter, we will compare the second quarter of 2022 with the same period of 2019, which was the last year we felt the effects of the COVID-19 pandemic in Brazil. During most of 2020 and 2021, we were prevented from promoting our content due to the restrictions imposed to contain the effects of the pandemic, and therefore, the comparison basis would be poor. The information related to the second quarter as well as the year-to-date 2021 and the evaluations are available in the earnings release and the presentation of this conference call. They can be used as a complementary analysis when necessary. With less venues in operation, we had a reduction in the number of events held in the period and in the number of tickets sold as described on Slide 5. In this quarter, we promoted 85 events with 92,000 tickets sold against 137 promoted in the second quarter of 2019 with 388,000 tickets sold. This reduction, however, is part of the strategies adopted during the pandemic, as already explained by Fernando. With a focus on less, but bigger events, we aim to reach healthier margins. The gross margin of 44.5% in this quarter is the example of it. In the same period of 2019, for instance, we had negative gross profit despite the larger number of tickets sold. 9 out of 85 events held in this quarter were live music. With emphasis on 5 concerts from McFly tour rescheduled from before the pandemic, these 9 shows together sold a total of 35,000 tickets. The other 76 events refer to sessions of the musical, The Addams Family, with 58,000 tickets sold, which due to the success of our audience, had its season extended on to August 28. Among the events promoted in the second quarter of 2019, we had Lollapalooza Brazil, which was held in April that year. As a result, net revenue for the second quarter of 2022 totaled BRL 50.2 million, 62% lower than the same period in 2019 with BRL 132.4 million. Analyzing by segment, in events promotion, we had a reduction of 77%, accounting BRL 18.9 million in this quarter, mainly due to the production of the musical, The Addams Family and the McFly tour. In 2019, however, we had a net revenue of BRL 82 million, mostly driven by Lollapalooza. In ticketing, food and beverage and venues operation, we had an increase of 33%, closing in BRL 28.4 million in the second quarter of this year versus BRL 21.5 million in the same period of 2019. This increase was mainly driven by the incorporation of INTI into the results. Finally, in sponsorships, we recorded BRL 2.8 million, which represents a 90% reduction compared to the BRL 28.9 million recorded in the same period of 2019, mainly comprised of Lollapalooza contracts. Moving to Slide 6. We can clearly see the effects of the strategies adopted by the company on gross profit and SG&A. Focusing on events with healthier margins, such as festival and family events, the diversification of our business with the acquisition of INTI and the adoption of a flexible structure after the reduction in number of the venues, gross profit was BRL 22.3 million in the second quarter of 2022. This gross profit generated a gross margin of 44.5%, reversing a gross loss of BRL 4 million in the same period of 2019. Looking at the 6-month period, we see in 2022, a gross margin of 22.7% against 6.1% in 2019. On the same slide, we see a 36% reduction in SG&A between the periods even without discounting inflation. Leaving away many small events, we were able to operate the company with a leaner structure, increasing the efficiency of our operation, the combination of healthier gross margins with more controlled SG&A was one of the main goals of the change promoted by the company. In other expenses, we recorded BRL 3.1 million in the first quarter of 2022, comprising BRL 4.2 million of provisions for contingency and lawsuits, partially offset by nonoperating income linked to sponsorship contracts. In the same period of 2019, this indicator recorded a negative amount of BRL 1.6 million, also resulting from provisions for contingencies. Moving to Slide 7. We see that in the official view, the EBITDA for the second quarter of 2022 was positive by BRL 9.4 million, reversing a negative result of BRL 19.6 million in the same period of 2019. In the adjusted view, BRL 4.2 million were excluded, while in the same period of 2019, the excluded amount was approximately BRL 900,000. In both periods, the adjustments refer to provisions for contingency and law suits recognized in other operation expenses as explained above. The adjustments applied to each period are detailed on Slide 8. After these adjustments, EBITDA totaled BRL 13.6 million in the first quarter of 2022 against a negative BRL 18.7 million recorded in the same period of 2019. Year-to-date, we have BRL 28.6 million in the official view and BRL 35.5 million in the adjusted view, compared respectively with BRL 27.7 million and BRL 10.1 million, both negative recorded in 2019. On Slide 9, we present the financial result, positive by BRL 1.3 million in the second quarter of 2022, which represents a reversal against the amount of the second quarter of 2019, negative by approximately BRL 900,000. This improvement is mainly driven by the positive exchange variation due to the 10.8% appreciation of the dollar in the period. The U.S. currency was quoted at BRL 4.73 at the end of March this year and BRL 5.24 at the end of June. Additionally, we had an increase in the Brazilian basic interest rate by 5.25 percentage points, going from 6.5% per year at the end of the second quarter of 2019 to 13.25% at the end of the second quarter of 2022. This increase influenced the line of financial expenses in a negative way due to the higher interest rate on the ventures, where on the other side, it positively impacts the financial income. Moving now to Slide 10. We present a net result. In the official view, we obtained a net income of BRL 8.6 million, and of BRL 13 million in the adjusted view, reversing a net loss of BRL 18.2 million in both fields in the same period of 2019. Adjustments applied to net income are mostly due to the same reasons as those applied to EBITDA, previously detailed on Slide 8. As for the cash balance from Slide 11 of the presentation, we ended the quarter with a net cash balance of BRL 103.6 million against BRL 70.3 million in the second quarter of 2019 and BRL 55.3 million in the first quarter of this year. This increase against both periods is due to the indebtedness increase combined with the company's ability to generate cash in the period. The smaller debt is due to both the amortization of the first installment of the debentures in May and the reduction in lease liabilities with less venues. Although we were unable to operate our content for almost 2 years, there was a slight variation in gross cash balance from BRL 224.1 million in the second quarter of 2019 to BRL 217.1 million in 2022. When compared to the first quarter of this year, there was even an increase in gross cash balance, which was BRL 193.2 million even after the debenture amortization. On Slide 12, we detail the cash flow. In this quarter, we generated BRL 24 million, while in the second quarter of 2019 and in the first quarter of 2022, we consumed, respectively, BRL 36.8 million and BRL 35.9 million. The main facts were, in operating cash flow, we generated BRL 47.6 million in this quarter, while in the same period of 2019, BRL 33.5 million were consumed and BRL 30.6 million in the previous quarter this year. This quarter's cash generation is due to the sales opening for Justin Bieber's concerts as well as the continuity of sales of Turá Festival and the musical The Addams Family. Additionally, in this quarter, we received amounts from Lollapalooza 2022, given it was held on the last weekend of the first quarter. We recorded consumption of approximately BRL 600,000 in cash flow from investments, [indiscernible] with previous quarters. These amounts refer to investments in management software and the evolution of our tickets platform. Consumption recorded in cash flow from financing activities increased from BRL 8.5 million in the second quarter of 2019 and BRL 1.3 million in the first quarter of 2022 to BRL 28.5 million in this quarter. This increase is due to the payment in this quarter of BRL 20 million referring to the amortization of the first installment of the debentures plus BRL 7.7 million in interest. Finally, there was a positive exchange variation of BRL 5.6 million due to the 10.8% appreciation of the dollar, as I have mentioned before. We have investments in cash available in foreign currency in Argentina and Chile for the operation of these countries as well as in the United States for payment of talent fees to international artists. When the dollar appreciates, the conversion of this cash and cash equivalents into Brazilian reals implies an increase in the balance of the accounts. Thank you all for the attention. Now Fernando will conclude the presentation of our pipeline.

Thank you for the explanations, Diego. Stepping aside our recent results, I would like to ask everyone to move to the last slide of the presentation, where I will talk about our upcoming events. On the first weekend of July, as we said earlier, we launched the first edition of Turá Festival, which results will be shown in the third quarter. Also in the third quarter, we will promote Justin Bieber's concert in São Paulo on September 14 and 15. And furthermore, we will also hold concerts of Maria Bethânia, Billy Idol, Jessie J and Dream Theater. In the fourth quarter, besides Pixies and David Garrett concerts, we have already announced the Popload Festival, which will take place on October 12 in São Paulo, and with Jack White and Pixies headline in this addition. As success of public, the season of the musical, The Addams Family, was extended until August 28 this year. We have already started preproduction of the musical, Anastasia, scheduled to premiere in the fourth quarter of this year. Between the musical season, we will present a national play. Still in family content, we went on sales of Warner Bros. Parque do Terror. The event will premiere on September 9 and features horror classics in an immersive and unprecedented experience. We keep in touch with artists and producers to announce new attractions soon. Strengthening our pipeline, we continue to focus on implementing and improving our strategy, reinforcing our leadership position in South American live entertainment industry. The Investor Relations team is now available to answer any questions you may have. Thank you very much again, and have, all, a great weekend.