Tegma Gestão Logística S.A. (TGMA3) Earnings Call Transcript & Summary

Good afternoon. For those who need the simultaneous translation, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter English room after that select mute original audio. Good afternoon to all. I am Ian Nunes, IR Manager of Tegma. Welcome to the conference call to discuss the Earnings of our Second Quarter of 2026. This conference call is being recorded, and the replay may be accessed in the company's website. [Operator Instructions] I'd like to give now the floor to Nivaldo, CEO, who will begin the presentation. Nivaldo, you may proceed.

Good afternoon, everyone. Ladies and gentlemen, I'm Nivaldo Tuba speaking here. CEO of Tegma. And on behalf of the entire company, thank you once again for participating in our earnings conference call. With me here are Ramón Pérez, our CFO and IRO, and Ian Nunes, our IR Executive Manager. As usual, we'll start our presentation on Slide 2, where you can find our disclaimer regarding forward-looking statements. On the next slide, Slide 3, will discuss the highlights of the quarter. The first being the approval of a payout of 62% of the company's net income for the first half of '26 as dividends and interest on equity. This distribution corresponds to BRL 1.14 per share and a 3.8% dividend yield. The record date will be August 6 and the payment date, August 18. The second highlight is an initiative from the Integrated Logistics Division. The division began providing a new service, a new container management service for BYD between the Port of Salvador and the customer's plant in the City of [indiscernible]. This new service adds to the others, we already provided through our vehicle logistics division and reflects a broader move to position Tegma as full service provider in the eyes of its customers. The third highlight concerns investments approved by the Board of Directors to be made in yards totaling BRL 13 million. These investments include the purchase of a yard and improvements to others in the City of Camaçari the BYD factory as well as improvements to land near the passive factory, which is the automotive hub of Sierra in the city of Horizonte. These investments reflect the increased demand from customers or yard management and warehousing services and reinforce Tegma's position as a full-service logistics operator. The fourth highlight is the source of a lot of pride for Tegma. Perhaps the numbers do not adequately reflect the complexity of these 2 ship and -- these 2 ship unloading operations involving 12,000 BYD vehicles that recently arrived at the Port of Itajai in the State of Santa Catarina. The efficient mobilization of personnel trucks and yards is reflected in the success of these operations, which managed to unload the cargo from 2 ships carrying 7,000 and 5,000 vehicles within 70 to 80 hours and transport them to Tegma yeard [indiscernible] also in the state of Santa Catarina. I would like to congratulate all teams involved. Moving on to Slide 4. Let's look at the main indicators for the automotive market in the second Q 2026. Such as domestic sales, which posted a robust growth of 24%, as shown in the top graph. This performance is the result of promotional conditions offered by automakers and dealerships and the result of increased auto loans and continued low unemployment rate as well as rising consumer confidence. Other factors driving this performance have been the electrification of the fleet, and the performance of sustainable cards as well as the government's tax exemption program for as polluting vehicles. this sales level, I should say, is the highest since 2014. On the bottom left, we see local production, which grew by 13%, reaching nearly 700,000 units. This figure mainly reflects growth in vehicle registrations. We also see the 23% drop in exports to right, which is a reflection of lower purchases from Argentina and Uruguay, as well as increased competition from Chinese automakers in those regions. On Slide 5, talking about the operating indicators for the automotive logistics division. We highlight that the number of vehicles transported, both domestically and exported increased by 21% in the quarter, reflecting a market share of 23.8%. And up 1.3 percentage points in the year-over-year comparison. This performance is the result of above-market growth from Tegma's key customers. Average distance traveled increased by 8%. This was driven by longer domestic trips and the growing share of total trips. Very well. Following these initial highlights, I'd like to turn the floor over to our Chief Financial Officer, Ramón Pérez, who will discuss our results, cash flow and other key indicators. Ramón, please?

Good afternoon, everyone. As can be seen in the top chart, the net revenue of the automotive operation in Q2 '26 was BRL 693 million. In other words, a 40% increase year-over-year. On the back of a 21% increase in number of vehicles transported and an 8% increase in the average business traveled as well as tariff adjustments during the period. In the bottom chart, the division's adjusted EBITDA margin in Q2 was 19%, up 1.6 percentage points year-over-year. This result reflects revenue growth combined with stable expenses during the quarter. Despite the change in ICMS credits, which had an impact of 0.8 percentage points in the year-over-year comparison. It is worth noting that the division's EBITDA and expenses for the quarter were impacted by an indemnity involving the former subsidiary, Direct Express in the amount of BRL 7.2 million. The Integrated Logistics Division posted net revenue of BRL 47 million, up 6%, mainly by virtue of the new container logistics service for the automotive industry launched in this quarter. As shown on the bottom graph, EBITDA margin reduced by reduced by 4 percentage points in the year-over-year comparison, a reflection of the following factors: loss of a transport contract in Q3 '25, the change in the method used to calculate ICMS tax credit and the lag in passing on diesel price increases from suppliers to clients. With regard to GDL, net revenue dropped 13%, reflecting greater use of customs clearance for vehicles will still on the water, a higher volume of vehicles arriving via of vessels rather than being stored on REX. The use of [indiscernible] this is the Federal revenue services electronic in [indiscernible], which reduces the need for warehousing in secondary zones and lastly, unfavorable exchange rate variation affecting bonded warehousing revenue. Regarding margins, in addition to lower cost dilution due to the drop in revenue. The decline is explained by higher operating costs, such as our rental costs. on a year-over-year comparison. These areas will be decommissioned as the vehicle inventory declines. Now talking about Tegma's consolidated results, we recorded a net revenue of BRL 740 million, up 3%, explained by the performance of the automotive logistics division and improvement of its operating indicators, but also due to new contracts for integrated logistics. Adjusted EBITDA, which disregards the impact of the nonrecurring indemnity grew 46% in Q2. With adjusted EBT margin improving during the period, driven by substantial revenue growth and stable expenses. Net income in Q2 on the bottom right, grew 24%, but the margin contracted by 1.2 percentage points due to lower equity income as well as higher financial expenses. Moving on to Slide 10. The chart on the left shows the company's cash to cash cycle at the end of the second quarter, which was 39 days within the usual range of recent quarters. CapEx for the quarter was BRL 15 million. And this was linked to the purchase of a plot of land in Camaçari, BRL 4 million. The acquisition of the company-owned fleet for used vehicle logistics totaling BRL 1.7 million and improvements to yards in Camaçari and Karasictotaling BRL 2.1 million. The company's free cash flow was BRL 1 million negative, a decline compared to Q2 '25, by virtue of high working capital consumption given the significant growth in automotive logistics revenue. On Slide 11, we present a detailed view of Tegma's capital structure. In the chart on the left, we can see that the company's cash now stands at BRL 197 million, which exceeds gross debt repayments for the coming years, resulting in a net cash of BRL 56 million. The company's gross debt stands at BRL 141 million at an average cost of CDI plus 0.94%, a reduction compared to the cost in March '26 due to financing secured through the BNDES Renova Frota program with the acquisition of our own fleet at a very competitive cost of CDI minus 2.2%. As for profitability indicators, due to all of the factors mentioned before, both ROIC and ROE as well as EVA all rebounded this quarter after 3 consecutive quarters of decline. On the right, we show the history of dividends and interest on equity paid. This half year, only yesterday, we approved the payment of BRL 75 million in dividends and interest on equity to be paid on August 18. We with a record date of August 6. On the next slide is shown in the top chart, we see our share performance compared to the IBOVESPA index and compared to the small cap index, taking last year's closing price as base 0. As we can see, despite our operational performance and the financial results achieved so far, Tegma continues to trade at multiples slightly below their historical average. With that, I would like to thank everyone once again for your participation and interest in our company. And I'd like to start now the Q&A session.

Thank you, Ramon. We will now start the Q&A session. for investors and analysts. [Operator Instructions] First question from Gabriel Rezende.

I would like to tap into the margin dynamic, given that we've seen strong industry volume. And I mean lightweight vehicles. And I believe we should continue to see this at a healthy level in the coming months. So I'd like to understand what explained this positive margin surprise in Q2. I mean, we could see that the company had some challenges in terms of EBITDA margin and profitability. And there were a number of factors involved. The company had ramping up, perhaps the marginal volume of the company impacting some of the operations, we were expecting a lower margin for this quarter. And we had this positive surprise, close to 18% in the Automotive segment. So there were challenges in previous quarters? And how should we expect the margin for the coming quarters? And is there any price pass-through that happened in Q2, which was not totally considered in Q2 and perhaps we will see the full effect of that only in Q3.

This is Ramón speaking. Thank you very much for the question. In fact, in the previous quarters, as we tried to explain into detail both verbally and in our earnings releases and reports, there were some effects related to the operation, which impacted our margin. We spoke about the effect of transport on barges. We spoke about issues related to relocation of teams. But as you said it yourself, when the operations are ramping up, there is some friction, there is some impact that can hinder the margin. This didn't go away, not overly at least. -- the operation is still very much heated. And again, there are some operations, which are -- I should repeat the term, still ramping up. So we can still see some positive impact coming out of that. anyway, in addition to volume, and we tried to highlight this in the report, we had a positive effect of the longer distance troubled. You see these are the 2 drivers for our revenue. Actually in Q2, we had a tailwind. We had volume, longer distance traveled reduction of those operational impacts that were having an impact on us. As for your question regarding room for this to grow even more, it's kind of hard to affirm fact. What I can say is that we're always working to stabilize these operational effects that can hurt our margin, always aiming at operational leverage and always aiming to improve our margins. A margin improvement can still come up, but we cannot commit to that. We cannot make any promises in that regard. But the fact is that in this quarter, we were able to cancel some issues that were temporary. They can happen again, but they were temporary. And the impact that we discussed in prior occasions related to the new methodology to calculate ICMS tax credits because this is something that has come to stay.

Gabriel, any other questions?

No, actually, Rowan, it's quite clear what you mentioned about the operational side. I just want to confirm the pass-through of tariffs. Perhaps there was a pass-through in -- so should we see this positive impact expanding or the full impact of this tariff path through in Q3.

Absolutely, some adjustments take place earlier, but the main ones, the main adjustments of tariffs for the main customers will happen in April, May. So you were correct. The full impact will be seen as of now.