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

Good morning, everyone. Welcome to our conference call for the year 2022. This period marked the live entertainment return in Brazil, now with no restrictions due to the COVID-19 pandemic. We can now leave behind what was the most challenging period, both in the history of our company and our market. We do it with a more resilient and flexible company with a healthier and more recurring margins. During this year, we delivered events that have been canceled in 2020, carrying part of their costs for this year. Thus, in addition to the positive EBITDA, reversing negative results in the previous years, we closed 2022 with a more comfortable cash and debt structure. This year's EBITDA was BRL 40.2 million. While in 2021, it was negative by BRL 54.1 million. And in 2019, the last year before the pandemic, it has also been negative, in this case, by BRL 22 million. This demonstrates the return obtained by the change in positioning that we promoted in the last 3 years to turn the company's structure lateral. When quarterly analyzed, we see that fourth quarter '22 was lower than the previous one, reflecting the lower number of events in the period. But even so, the recurring portion generated by ticket and theater operations in Brazil and Argentina sustained the positive results. Gross cash at the end of the year was BRL 185 million against BRL 229 million at the end of 2021. But it's important to highlight that at the end of last year, we carry tickets and sponsorships received since 2019 for events that we delivered during the year of 2022. A reflection of this can be seen in net cash, which ended the year at BRL 93.6 million, a small change from the BRL 95.8 million recorded one year ago. This means that our indebtedness reduced from 58% of gross cash to 49%. The family and theater events were important this year with the great success of the musical, The Addams Family, which run until August being replaced by Anastasia. Additionally, we took our first step into immersive experiences. We continue to develop our Festival platform. With the first edition of Turá in July and the return of Popload in October. In the fourth quarter, we've also entered sales for Festival Grls! 2023 edition, held on March 4 and 5. We promoted several indoor shows throughout the year with emphasis on Maria Bethânia, Billy Idol and Jessie J. At the other shows after the cancellation of Justin Bieber's performance. The tickets for the 2 shows of Paramore in Sao Paulo were sold out as well as the ones in Rio de Janeiro, Buenos Aires, Santiago and Bogota held between March 5 and 14 this year. I will come back to talk about the upcoming events at the end of our presentation. Now Diego, our Investor Relations Officer, will detail the financial and operating results for the period.

Thank you very much, Fernando. To have a fair view of the results evolution as in the previous quarters, we will compare the fourth quarter of 2022 with the same period of 2019. Last year, we felt the effects of the COVID-19 pandemic in Brazil. We did not promote our content for most of the years, 2020 and 2021, due to the restrictions imposed to control the effects of the pandemic and, therefore, the comparison basis would not be fair. The information related to the quarter and the year of 2021 and its variations are available in the earnings release as well as the presentation of this conference call. They can be used as a complementary analysis when necessary. In this quarter, we promoted 107 events with 57,000 tickets sold against 144 promoted in the fourth quarter of 2019, selling over 253,000 tickets as shown on Slide 5. From these 107 events, 7 were live music, including one day of the Popload festival in October, 3 performances of Kenny G in Sao Paulo, Rio de Janeiro and Porto Alegre. In addition to shows of Pixies, David Garrett and Metronomy. These 7 shows sold a total of 20,000 tickets in family and theater, 57 events refer to Warner Bros, Parque de Terror. And 43 are related to the musical, Anastasia, with a total of 37,000 tickets sold. We closed the year of 2022 with 323 events promoted against 555 of the year 2019, a reduction concentrated in live music, where this number went from 176 to 30 events this year. This reduction is part of the strategies adopted by the company, focusing on fewer events with greater profitability rather than higher number of events with tight margins. In family and theater, the reduction was smaller from 379 to 293 events. Due to the pause between the Addams family and Anastasia compared to the O Fantasma da Ópera, which was on display continuously in 2019. Revenue for the fourth quarter of 2022 was lower by 46% when compared to the fourth quarter of 2019, mainly due to the larger number of events previously cited. In the annual view, this drop is smaller of 17%. Looking by segments, in event promotion, we had a reduction of 92% due both to the smaller number of events and to the fact that Anastasia and Parque Do Terror are coproductions in which the box office revenue is recognized by the producer of the event, and T4F is entitled to show participation in the results recognized when it ends. Comparing the annual result, this reduction is 33%. In the line of box office, food and beverage and venues operations, we had in the same quarter revenue 20.8% higher compared to the same period of 2019, being BRL 28.7 million against BRL 25.6 million. This increase is mainly due to the overall sales of Lollapalooza 2023, sales of Paramore, The Black Crowes and Grls! Festival as well as for the musical, Anastasia, and Warner Bros Parque Do Terror. It also comes from third-party events sold through our ticket platforms. In the annual comparison, this line grew 50% in 2022 compared to 2019, even if the seizing of the operations of venues in the period, mainly demonstrating the expansion of the tickets operations in sponsorships, we accounted BRL 15.5 million composed of presale of Lollapalooza 2023 and revenues from Popload, and [ indoor ] shows promoted in the period. This means a contraction of 42% compared to the BRL 27.2 million recorded in the same period of 2019, where in the editions to Popload 2019 and presales of Lollapalooza 2020 held only in 2022 due to the pandemic, the result content [indiscernible] of the old venues whose operations have been shutdown during the pandemic. In the year, again, this reduction is a smaller of 33%. Moving on to Slide 6. We see the reflections of the strategy of focusing on fewer events with healthier margins. On the company's gross profit and SG&A. The gross profit for 2022 was BRL 83.8 million with a gross margin of 25.5%, against BRL 56.6 million in 2021 whose gross margin had been 13.4%. This results in a 48% increase in gross profit with 11 percentage points more gross margin. In the fourth quarter of 2022, we had a smaller number of events combined with the recognition of BRL 2.4 million of additional cost of the results of Lollapalooza 2022. These costs are referred to the payment as the participation in the results higher than projected at the end of the event. If you disregard this effect, the gross margin would be 26.8%, above the margin recorded in the first 9 months and, consequently, in the total of the year. As a result, gross profit was BRL 10.2 million in the fourth quarter of 2022 compared to a gross profit of BRL 25.7 million in the same period of 2019. Also on this slide, we see a 55% reduction in SG&A in the fourth quarter of 2022 when compared to the same period of 2019. This reduction is distributed among all lines which reflects the company's focus on controlling expenses for the preservation of its cash. The company continues to operate from our simplified and flexible structure adaptable to the content it produces which also reflects the 41% reduction in SG&A when compared to 2022 and 2019. In other revenues and expenses, we recorded BRL 2.2 million in the fourth quarter of 2022 composed mostly of credits for tax recovery related to events held during all the year in the amount of BRL 4.2 million, partially offset by BRL 2 million of provisions for contingencies. On Slide 7, we see that 2022 EBITDA was BRL 40.2 million, of which BRL 2.6 million was generated in the fourth quarter. This result reverses negative EBITDA of BRL 22 million in 2019. Even with the generation of BRL 7 million in the last quarter of that year, accounting EBITDA totaled BRL 2.6 million and recurring EBITDA of BRL 4.6 million in the fourth quarter of 2022 versus BRL 2.6 million in the same period of 2019. The accumulated of this year, it was BRL 56.2 million against BRL 5.9 million negative recorded in 2019. In both periods, the adjustments refer to agreements, current decisions and contingency provisions recognized in other operating expenses. On Slide 8, we showed a financial result negative at BRL 16.6 million in the fourth quarter of 2022. Of this result, approximately negative BRL 2.3 million refers to the difference between financial revenues and expenses composed of incomes from investments and partially offset by interest on debentures. In addition, monetary updates of sponsorships prior to the pandemic reflected negatively on this line at BRL 3.5 million. Compared to 2021, the main variations are in the lines of income from investments and interest on debentures, both cases indexed by Brazilian interest rates and, therefore, with its increase, we have a higher result in both lines. In addition to these impacts, we have effects that do not directly affect cash in the exchange rate variation lines in the amount of BRL 8.7 million, reflecting depreciation of the real against the dollar in the period. The company has cash in foreign currency for the payment of international artists as well as for the local operations in Argentina and Chile. In addition, the hyperinflationary variation was negative by BRL 2.1 million, a result of inflation of [ 70.4% ] in Argentina in the fourth quarter of 2022. In 2019, the negative financial result of BRL 5.5 million is basically due to the monetary update of contingencies in Argentina. Moving on to Slide 9, we have the net result. We obtained an accounting view of the fourth quarter of 2022, net loss of BRL 14.9 million and of BRL 20.2 million [indiscernible] against BRL 6 million and BRL 7.8 million after adjustments in the same period of 2019, both negative. The adjustment applied to net income are mainly due to the same reasons as those applied to EBITDA explained earlier on Slide 7. In addition, the result of variations due to hyperinflation in 2022 totaled BRL 12.4 million. This effect has no impact on the company's cash flow and has a counterpart in the shareholders' equity group. Adding this effect to the net loss of BRL 8.4 million in 2022, the result would become positive at BRL 3.9 million. As for the cash of the company on Slide 10 of the presentation, we closed the quarter with net cash of BRL 93.6 million against BRL 95.8 million in the fourth quarter of 2019 and BRL 115.5 million in the third quarter of this year. The decrease against both periods is mainly due to the amortization of installments of the debentures, which is evidenced by the decrease in the indebtedness by 74% of gross cash in 2019 reduced to 58% in 2021, 50% in the third quarter of 2022 and, finally, to 49% at the end of the year. analyzing gross cash, the main variations between BRL 209.7 million at the end of 2019 and BRL 185.4 million at the end of 2022, where the amortization of 2 installments of the debentures in the amount of BRL 40 million discounted from the operating cash generation in the period. When compared to the immediately previous quarter when gross cash was BRL 232.6 million, the reduction was due to the amortization of one installment of debentures in November as well as the payment of the co-participation related to Lollapalooza 2022 to the brand holder. On Slide 11, we detailed cash flow. In this quarter, we consumed BRL 47.2 million while in the fourth quarter of 2019 and in the third quarter of 2022, we generated, respectively, BRL 28.4 million and BRL 15.5 million. The effects were, in operating cash flow, we consumed BRL 28.8 million in this quarter, mainly by the payment of the co-participation aforementioned, an effect that did not exist last quarter and much smaller in the same period of 2019, given the smaller size of the festival that year. We recorded a consumption of approximately BRL 500,000 in investment cash flow, mostly related to investments in management software and evolution of the ticket company, INTI. In line with previous periods, consumption recorded in the financing cash flow increased from BRL 5.7 million in the fourth quarter of 2019 and BRL 1 million in the third quarter of 2022 to BRL 29 million in this quarter. This increase reflects the payment of BRL 20 million related to the amortization of the second installment of the debentures, plus BRL 8.3 million of interest. Finally, there was a positive exchange rate variation of BRL 11.1 million due to the compensation of the noncash effect by the appreciation of the real against the Argentine peso in the dollar offering currencies and assets. Thank you all for your attention. Now Fernando will conclude with the presentation of our pipeline.

Thank you, Diego. I would like to invite everyone to move on to the last slide where we will talk about the events already announced for the coming months. In the next days, we will have the 10th edition of Lollapalooza Brazil with Drake, Billie Eilish, Twenty One Pilots, Tame Impala, Rosalía and Lil Nas X as headliners. Despite the cancellation of Blink-182's presentation, due to a health issue of drummer Travis Barker, the box office is within expectation, making this another historic edition. Still in March, we had the second edition of Festival Grls! with a 100% female lineup. The festival was created to amplify the work of women not only in our industry but also in our society. In addition, we had far more concerts sold out in 4 countries. And a single concert by The Black Crowes, which was a success of public. For the coming months, we highlighted the return of Tura whose second edition will be held in June. The musical, Anastasia, will continue until the beginning of May. In addition, we will keep exploring the segment of immersive experiences this time with Avengers S.T.A.T.I.O.N. This content shows the knowledge and cutting-edge science that inspire Marvels to these productions. Success in several countries where it has been, this attraction will have its debut in May. 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 Thursday.