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

Good morning, everyone. Welcome to our conference call for the third quarter of 2022. The following results reinforce the goals of the company's turnaround since the pandemic. The great effect in the last 3 months was Justin Bieber's canceled concerts in Sao Paulo. We are able to absorb its impacts due to our recurring revenue services. His health condition and the decision of calling off the scheduled shows were completely beyond our control, even though we immediately took action to reimburse the amounts paid and write off the revenues already recognized. We did it not only for the ticket holders, but also for transparency with our investors. Thus, the result to present is already affected by this event with no remaining future impacts. Besides this misfortune, the result generated by other events was enough to keep the business on track. As we said earlier, we pivoted the company through the pandemic to bring more constant and healthy margins. As a result, we recorded recurring EBITDA of BRL 16.1 million after excluding the nonrecurring effects from a BRL 9 million EBITDA. This result is in line with the ones we have presented in the previous quarter and tops the same period in 2019, the last year before the pandemic, and in 2021. Even with the write-offs referring to Justin Bieber, we generated cash this quarter, ending September with gross cash of BRL 232.6 million against BRL 217.1 million at the end of June. In addition, to expand these recurring results, we have continued to pave our growth avenues. In August, the season of the musical, The Addams Family, was ended. It was watched by 196,000 people in 148 sections. Then, we started the production of the musical, Anastasia, our next Broadway show. The strengthening of family and theater events is one of our main growth drivers. In addition to making a bold return to Broadway shows, we are exploring new content in this segment, such as Parque do Terror Warner Bros. This is our first step into Immersive Experiences content. Another important driver is Festival platform. In July, we launched Tura, with positive results in its first edition and a great experience for the patrons. We also went on sales for Popload 2022 and for Lollapalooza 2023, with a precedent performance in presales and general sales, that indicates this will be an even greater edition than the last one. We will talk about upcoming events at the end of our presentation. Now Diego, our Investor Relations Manager, will detail the financial and operating results of this quarter.

Thank you, Fernando. To have a fair view of the results evolution, as in the previous quarters, we will compare the third quarter of 2022 with the same period of 2019, which was last year without 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 unfair. The information related to the third 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. In this quarter, we promoted 105 events with 103,000 tickets sold, against 130 promoted in the third quarter of 2019 selling over 173,000 tickets as shown on Slide 5. This reduction is part of the company's turnaround, focusing on major events, but in a small number, which generates healthier margins. The gross margin of 41% in this quarter reflects disruptions, while we had gross profit of 28.1% in the same period of 2019 when we still operate events in Sao Paulo, Belo Horizonte and Rio de Janeiro. From the 105 events held this quarter, 7 were live music events, including 2 days of the Tura Festival in early July, 2 concerts of Maria Bethania, in addition to performance of Jessie J, Billy Idol and Dream Theater. These 7 shows, together, sold a total of 23,000 tickets. In Family and Theater, 45 events refer to the Immersive Experience part of the Warner Bros, with 25,000 tickets sold added to the 53 sessions of the musical, The Addams Family, with 66,000 tickets sold this quarter. And due to the great success of [indiscernible], had its session extended until August 28. The revenue in the third quarter of 2022 was 2% lower compared to the third quarter of 2019. This decrease is due to the lower number of events despite its larger size. Looking at segments. In Events Promotion, we had a reduction of 24.9%, registering BRL 13.5 million in this quarter, mainly due to the musical, The Addams Family, and the Tura Festival. While in 2019, we had the promotion of indoor shows in our own houses and race stages of the Stock Car. In Ticketing, Food & Beverage and Venues operation, we doubled the third Q '19 revenue with BRL 31.9 million against BRL 15.9 million. This increase is mainly due to the sale of tickets for the musical, The Addams Family, and pre-sale of Lollapalooza 2023, in addition to third-party tickets through our ticket platforms. In Sponsorships, we recorded BRL 7.9 million, which represents a reduction of 61.6% compared to the BRL 20.7 million reported in the same period of 2019, mainly composed of Stock Car sponsorship and naming rights of the former venues. Moving on to Slide 6. We see the effects of the strategies adopted by the company on gross profit and SG&A. Gross profit was BRL 21.9 million in the second quarter of 2022. We generated gross margin of 41% compared to a gross profit of BRL 15.4 million in the same period of 2019. Looking at the year-to-date, we see in '22 a gross margin of 26.1% against 10% in 2019. On the same slide, we see a 43% reduction in SG&A between the periods, even without discounting inflation. We continue to operate with a more simplified structure, focusing on fewer events with greater added value with and without venues. With that, we have greater flexibility adaptable to the production of our content. In other expenses, we recorded BRL 4.9 million in the third quarter of 2022, consisting of BRL 7.2 million in provisions for contingencies and results of legal proceedings, minus other operating income referring to events promoted in the year in the amount of BRL 2.3 million. In the same period of 2019, this line recorded a negative amount of BRL 4.2 million, mainly due to the provisions for contingencies. Moving to Slide 7. EBITDA for the third quarter of 2022 was positive BRL 9 million, reversing our negative result of BRL 1.3 million in the same period of 2019. Recurring EBITDA totaled BRL 16.1 million in the third quarter of 2022 against BRL 1.6 million in the same period of 2019. In year-to-date, we have BRL 37.6 million in the accounting view and BRL 51.6 million in the recurring, respectively, compared to BRL 29 million and BRL 8.5 million, both negative recorded in 2019. In both periods, the adjustments refer to agreements, court decisions and provisions for contingencies recognized in other operational expenses. On Slide 8, we showed the financial result, negative by BRL 20 million in the third quarter of 2022. From this result, approximately BRL 500,000 refer to the positive financial results in the company's cash, composed of income from financial investments in the period and partially offset by interest on debentures and interest on liabilities related to the installments through which we -- the company adhered to the PPI [indiscernible]. Compared to 2021, the value results come from the company's net cash and high interest environment globally. In addition to these, we have effects that do not directly affect cash in the exchange monetary and hyperinflationary variation lines in the amount of BRL 20.6 million negative, of which BRL 6.2 million referred to the monetary statement in the provision for civil lawsuits. The remainder is mainly derived from the appreciation of Brazilian currency against Argentine peso by 13.4%, generating a hyperinflation adjustment. In 2019, the financial result also negative of BRL 6.2 million is basically due to the monetary statement of contingencies in Argentina. Moving now to Slide 9, we have the net result. In the accounting view, we obtained a net loss of BRL 8.8 million and a profit of BRL 4.4 million in the recurring view, reversing a net loss of BRL 13.2 million and negative BRL 7 million, respectively, in the same period of 2019. The adjustments applied to net income are mainly due to the same reasons as those applied to EBITDA previously [indiscernible] on Slide 7. As for the company's cash, shown on Slide 10 of the presentation, we ended the quarter with net cash of BRL 115.5 million against BRL 75.3 million in the third quarter of 2019 and BRL 103.6 million in the second quarter of this year. This increase against both periods is mainly due to the decrease in indebtedness combined to the company's cash generation in the period. The decrease in indebtedness is both due to the amortization of the first installment of the debentures in May and due to the reduction of leases, I believe, with the end of the operations of venues. These actions changed the gross cash positively, ending the period with BRL 232.6 million in the third quarter of 2022 compared to BRL 236 million in 2019. On Slide 11, we detail the cash flow. In this quarter, we generated BRL 15.5 million, while in the third quarter of 2019 and in the second quarter of 2022 we generated, respectively, BRL 11.9 million and BRL 24 million. The main effects were: In operating cash flow, we generated BRL 19 million this quarter, while the same period of 2019 we generated BRL 6.4 million to BRL 47.6 million in the previous quarter. The cash generation in the previous quarter is due to the opening of sales for the 2 Justin Bieber concerts that we reimbursed in the third quarter. In this quarter, we still counted on the continuity of sales for the Popload Festival and the holding of Tura. We recorded consumption of profits made with BRL 400,000 in cash flow from investments, mostly related to investments in management software and evolution of the ticket platform in line with previous quarters. Consumption recorded in cash flow from financing activities decreased from BRL 1.5 million in the third quarter of 2019 and BRL 28.5 million in the second quarter of 2022 to BRL 1 million in this quarter. This decrease is due to the payment in the previous quarter of BRL 20 million referring to the amortization of the first installment of debentures to BRL 7.7 million in interest. Finally, there was a negative exchange variation of BRL 2.1 million due to the 17.7% devaluation of the Argentine peso against the dollar in the period. Thank you, all, for the attention. Now Fernando will conclude the presentation of our pipeline.

Thank you, Diego. I would like to ask everyone to move to the last slide, where I will talk about our upcoming events. The 10th edition of Lollapalooza Brazil will take place in March 2023. Drake, Billy Eilish, Blink-182, Tame Impala, Rosalia and Lil Nas X will headline this edition. After sales records, one of the days is sold out, and we continue with good sales pace of the others. We had a new addition of Popload in October, the first half of the pandemic. We also sold out all Paramore concerts in Sao Paulo, Rio de Janeiro, Buenos Aires, Bogota and Santiago in just a few hours. There will also be indoor shows by Kenny G in November, the Metronomy in December and the Black Crowes in March. After The Addams Family, we promoted 4 weeks of local production. In the meantime, we produced the musical, Anastasia, that premiered yesterday. Lastly, Parque de Terror continues until December 4. Before finishing our conference call, we would like to invite everyone to visit our new Investor Relations website on ir.t4f.com.br. We improved the main communication channel with the market and with our investors, delivering a website with a more intuitive and responsive navigation. The Investor Relations team is now available to answer any questions you may have. Thank you very much for your attention, and I wish you all a great weekend.