Valid Soluções S.A. (VLID3) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Results Call for the First Quarter of 2025 for Valid. My name is Lucas Miyasaka, Manager of RI and Corporate Finance. So this event is being recorded and participants will be watching the teleconference during the broadcast. For those who are interested, this presentation has simultaneous interpretation into English. The support slide deck will be available in our RI website. And after this event, this will be on our website. As soon as we finish the presentation, we'll start our Q&A session. Questions can be submitted from now on and throughout the broadcast. [Operator Instructions] It's important to say that some -- this presentation includes forward-looking statements that reflect current beliefs and expectations regarding future and financial results and other aspects of the business and based on other information, too. These beliefs and outlooks are not a guarantee of future performance because they involve risks and uncertainties. They depend on circumstances that may or may not take place. Investors should understand that economic situation, operational events can affect and impact the future of the company and lead to results that materially differ from these beliefs and statements. Today, we have Mr. Bressan, CEO of Valid; and Olavo Vaz, our CFO and RI Director. Now Mr. Olavo will start the presentation. Olavo, good morning.

Good morning, Lucas, and good morning, everyone, here with us in this earnings call for the first quarter, especially our shareholder base. On behalf of the Board and all the employees and collaborators of Valid, I would like to thank you for your participation and interest. In this call, I'll present some changes in the format. Initially, I will generally go through the figures of Valid this quarter. Then Bressan will talk about more qualitative details for each of our verticals and also look into business perspectives. And then we will wrap up with our traditional Q&A session. Now let's talk about revenue and EBITDA for this first quarter. We closed a revenue of BRL 501 million, 4% increase compared to the first quarter of '24 and a drop of 15% considering the first quarter of last year. Our highlight is in the vertical ID, overcoming these 2 quarters, growing 6% against the first quarter and 8% against the third quarter. In Mobile, 26% growth and a drop -- in the first -- considering the first quarter and 28% drop considering the third quarter. There is some seasonability in the contract in this business and also considering some of the contracts. Valid growth was -- had a drop of 31% in Pay year-on-year comparison. As we have reinforced since the closing of the third quarter of '24, the vertical has suffered with a more pressured environment, both by clients and competitors alike. Now moving on to EBITDA. We closed this quarter with BRL 104 million, 10% less against the first quarter of '24 and 5% considering the fourth quarter last year. This reduction was also pushed by the Pay vertical. Later, we'll talk about this vertical and the scenario we are going through. EBITDA growth of 25% in the ID segment softens the impacts generated by the Pay vertical. Valid's executive team has been focusing this year and last year on changing the revenue metrics of the company. This change comes especially from the growth of new businesses. Once again, BUs that compose this group was the highlight of this quarter. We closed the quarter with BRL 77 million in revenue with a growth of 141% against the first quarter of '24 and 16% growth against the last quarter of '24. This growth was pushed by the growth in the BU we work with and the recent buyout of VSoft with consolidated numbers of VSoft in the first quarter of '25. VSoft is an ID tech focused on identifying people and certifying processes. It has presence in 19 states and the initial acquisition was -- or happened in '22, contributing this year with BRL 16 million. When we look at the revenue of new businesses in the past 12 months, we have a sum of BRL 261 million, representing a growth of 266% year-on-year. New business revenues account for 15% of the total Valid revenue, and it calls our attention. When we look at EBITDA that sums up BRL 28 million, 1/4 of the whole Valid's EBITDA. In this quarter, we moved from an EBITDA of BRL 104 million and we reached an accountable revenue of BRL 73 million. We had BRL 23 million in depreciation at a stable level. The financial result was negative in BRL 22 million, impacted mainly due to currency variations that had no impact on the cash flow. In this quarter, we had taxes of BRL 3 million and other impacts of BRL 2 million, recurring income of BRL 44 million. On top of this recurring amount, we add the liquid -- the net effect of the divestment of assets in Colombia as we disclosed on April 1. The receiving these amounts from the divestment in Colombia may be in our accounts during this first quarter. We have an EPS of BRL 3.4 per share. When we look at the drop of the accountable net income year-on-year, this is due to the sale and the participation we had in Cubic in the first quarter of '24. When we look at the recurring net revenue year-on-year, there is a growth of 23%. Now let's move on to cash flow and variations in this quarter. We started '25 with a super comfortable cash flow position, which helps the company to go through -- smoothly through challenging times and accelerated growth. So we leave a cash flow by the end of '25 of BRL 770 million of BRL 755 million. We maintain the cash flow position when we compare quarter-by-quarter due to the strong cash generation Valid has presented every quarter. In this quarter, our operational cash generation was BRL 133 million, representing BRL 127 million of the EBITDA. This strong generation was due to a better working capital generation, important reduction in accounts receivable, influenced by the receiving of the Mobile vertical in abroad. Our CapEx in this quarter was above what we have seen. This is due to acquisitions in companies in Mitra and VSoft. Besides, we also had JCP interest on equity in January and in March and also the share buyback programs I will discuss later. Other less significant variations were in financial results, debt and currency effects. In the previous slide, I showed that the main highlight in working capital was the reduction of accounts receivable. In this quarter, there was a drop of BRL 101 million and also improved the time to receive from 79 days to 72 days. We have seen stabilization in this quarter. In our accounts receivable, we maintained the level of last year with a balance of BRL 175 million and 53 days on average. We remain focused on improving the working capital indicators with new advancements that may be -- even if new advancements can be considered marginal. We have worked on leverage in the past few years with the main highlight in the first quarter of last year when Valid has become, for the first time, a net income company since its IPO. As we can see on the graph, we have a comfortable position in cash flow. Nearly 20% of our debt in short-term due date and bankability with our main partner banks. We still look for businesses and opportunities that improve the liabilities of Valid, just like BNB acquisition made last year. With this, Valid has looked for sources to finance based on technology and regional development projects, both in the Northeast region of Brazil and other regions in Brazil, too. Initiatives like this contribute to improve the profile and cost of debt, reinforcing our financial discipline and strengthening the ability to invest in expansion. We also advanced with the financial strategy with rolling our debt abroad, followed by the conversion of part of this debt into Brazilian reals. This movement reinforces the discipline of the company in terms of managing its debt profile, bringing important benefits to its capital structure like the mitigation of current threat, better rates, and consequently, liquidity and capital structure that is stronger. Just like in '24, Valid shares remain with a good performance, both in terms of profitability and liquidity in the first quarter of '25. Let me highlight here negotiated volume in the first quarter of '25 that increased 25% when we compare this with the first quarter of '24. Even with the strong performance, we at the Board, still see the opportunities to value our share. And this is why we just approved a new buyback resale of 2 million shares. Now I reached the end of my slides, and I will call our CEO, Mr. Bressan, so he can detail more the results of our verticals and talk about perspectives for '25 and the future. I'll be back soon for the quick Q&A session with you. Bressan, the floor is yours.

Good morning, everyone. Thank you, Olavo, for talking about our figures. Now let me talk about some more qualitative information about the verticals, starting with Valid ID. It's important to highlight that Valid ID grew 27% year-on-year compared to '24. And if you go back 2 years, it's 40% and EBITDA in this year also grew 25%. So it's above 30% in margin also because of representativeness of new business in this vertical has grown throughout this quarter. If we consider new businesses, everything that was created from 2022 on in Valid in general, it's 15%. And in the ID, they already account for 23% of the revenue. This is the way we would like to continue for the other verticals; this model of aggregating a new growth mix, aggregating the expertise we have with the onboarding, the offline people, biometrics and competencies of digital onboarding, identity proof, know your customer or know your business, all of these competencies. We have a tangibility to our ID platform, resulting in strong growth, good profitability and fueling new businesses and strengthening fostering new businesses to scale up as Valid in the future. When you look at volume, if we can show the slide, one important Valid ID information is how is the issuance of documents like CNH or the driver's license and identification, the old RD versus the new SIM, we can see a significant change. From now on, we will see more and more growth of SIM, this new ID, and a decrease in issuance of CNH or the old driver's license. And the number of SIM, the national identity card, is over BRL 3.7 million in this quarter. Now looking at Mobile, here, we have an important news that is a recovery on year-on-year in Mobile growing over 20% in net revenue and over 50% in EBITDA. Obviously, these are pretty significant figures, but we need to consider that the first quarter of last year was a hard one for the ID vertical and also for Mobile vertical. So this vertical has recovered and now moving on regarding its performance. When we look at the SIM cards volume, still significant in this business unit revenue. We have a stabilized standard of 50 million SIM cards. But in the digital revenue, especially regarding the number of licenses sold to OEM, the manufacturers of devices that carry eSIM, this number has grown significantly. Considering the digital numbers in Mobile, we also have a level of 15% in this vertical, nearly 15%. Now moving on to the Pay vertical. Olavo has already discussed the performance figures we achieved in this vertical, the Pay vertical and we here have nothing new, nothing to add. Just I'd like to tell that we are back to normal in this vertical. In '23, we used to had Argentina, but comparing the markets, we can never consider that it would be irregular to think that Argentina would have a superior revenue if compared to Brazil. So Valid Pay, especially cards, they go through favorable and unfavorable cycles. And the response of our executive team is to do the following: one, Mobile is still profitable. This vertical is still profitable. So to face this drop in results, we maintain our operational discipline, adjust capacities, adjust costs to preserve the generation of cash flow until favorable wins can go again. Nothing worries us effectively regarding this vertical. We will keep on our discipline, we have served a positive wave and we will expect for this element to come back to regularity. Now moving on to the highlights of this quarter. I would like to quickly go through what Olavo talked about EBITDA, cash flow and so on. I would like to give a little bit of details regarding our new digital businesses. It's interesting to see a growth of 141% growth. It's great to have annualized revenue of over BRL 308 million in this quarter in ARR. It's important to understand that over 1/4 of the EBITDA we generate in Valid in the first quarter derived from new businesses of Valid. So having the source of revenue of over BRL 300 million, with over BRL 28 million of EBITDA, so therefore, a new unit that is highly profitable. It's as if we are comparing this to a start-up. So inside Valid, we have a new start-up which has a BRL 380 million annualized revenue. And when you consider the size of the market we are entering in, we can say that it's great to have over 1/4 of EBITDA generated by this new business, but it's especially -- it's better to see the size of this market, which is huge if compared to the markets we are used to operate in any of the ecosystems we work with, ID, payment banks or telecom. So what we have ahead is a revenue that can be multiplied by 10. Considering the size of the market, we just scratched the surface of the size of this market that sums up over BRL 26 billion only in the Brazilian market. So in other words, what we can show with our businesses that can be confirmed in this first quarter is that we add a recurring net revenue that has -- that is digital, good margin, that contributes to already today with 1/4 of our EBITDA and projection that is unlimited. And each Brazilian real that we capture now in this business will be multiplied by dozens of Brazilian reals that will be invested in digital government, digital onboarding and cyber ID, cyber safety, focus on ID, all of these pillars, all of these elements that constitute our ID -- safe ID platform for the Brazilian citizens. This portfolio decreases the cycle of other business and embed strength in Valid for the next few years. So let me talk about this take-home message. Everybody knows about this slide. We always talk about our short-term and long-term goals, but I would like to reinforce that the first quarter shows, with the figures Olavo discussed, a strong performance, especially in ID and Mobile verticals with a strong free cash flow, very consistent growth in our new businesses in all of them. We continue among the pillars we have defined. One of them becomes really, really important and in the daily management of our business, which is investment in technology and innovation. So we have more and more talent to generate the renewal of our portfolio as the market opens up for this new portfolio of providing Brazilian citizens with safe ID. We want to invest in future organically and inorganically and also provide our shareholders with strong remuneration as we have disclosed in the beginning of this year. With this, I finish, I close, I wrap up my presentation with the results of '25, this first quarter. Let me ask you to wait for 1 minute until we can start our Q&A session. See you in a few moments.

So let's start our Q&A session. [Operator Instructions] So the first question goes to Bressan from Luciana. Congratulations on your results. How the digital onboarding, digital mobile and digital government can contribute to diversify Valid's offer?

Thank you, Luciana. Good morning, everyone. I believe that the figures we present to you regarding this new -- 3 new businesses, new ventures we've been investing, businesses that didn't exist before and started existing from 2022 on. Now they are very important in net revenue or profitability represented by our EBITDA. So we have a long way of evolution in our portfolio. Since last year, we've been developing our results teams, the competencies of each of our acquired companies has reinforced our competencies. We have expertise in online onboarding, biometrics and treatment of documents. These competencies are now in a digital environment with our digital onboarding platform with the acquirement of Flexdoc in 2023. We strengthened this year on with our option to control VSoft, which also have expertise in biometrics, digital and proctoring ID, validation of ID, processes in different systems, all of this composed with other core competencies at Valid. And digital government, digital services provide us with more data, more information regarding citizens' behavior regarding their relationship with the state. So these competencies mixed with our strong presence in the public environment with proven competencies to increase our portfolio and move into banks and telecom and private sector. So this mix has proved to be a metric that can be added to our historic metrics and will help Valid to grow even more in the next quarters and years.

To Fabio from Olavo. Congratulations. Does Valid pretends to use its liquid revenue for M&As, which would be the focus of these acquisitions?

Fabio, thank you for your question once again and thank you for your participation here. I think the first clear-cut answer is that there's no doubt our revenue will be used for M&A activities. This has happened since 2022. So M&As are part of Valid's DNA. In this first quarter alone, we had a higher volume of expenses in our CapEx. Because of this, because we have exercised the option we had concerning VSoft, we are consolidating this. We can see the VSoft component. In our result release, we give more information about VSoft and the numbers, the figures, the growth we've had with them. We are advancing in this integration with companies we've had before in-house companies, but we're still looking at the market. Bressan just mentioned, and later I'll ask him to add something to my answer. But he talked about some of these segments where we start working with. When we leave a world that we were known for our issuance and now we are moving more into transaction. We need to look at validation, the daily routine. So there are components in this chain. They are little developed in-house. So maybe we could look for a strong partner to roll this out to leverage this growth. I'm not going to mention any names right now, but we are looking out at the market. We have market intelligence and M&A, new businesses, teams here at the company, always paying attention more reactively and more proactively. And as these negotiations move forward in the next few quarters, we will provide you with this information. And Bressan, would you like to -- if you have anything to add?

Well, the main aspect here is that we want to be the main platform Brazilian society trust for their digital journeys. So as we evolve our portfolio, we are no longer working with the issuance of credit cards or issuance of identity cards or driver's license or SIM card. So moving from the issuance cycle and moving into the transaction cycle, too. So all of these businesses, all digital onboarding verticals and the improvement of expertise regarding know your customers, know your business, protecting the identity credential that we call cyber ID, the GovTechs and the business models we have that rely on information regarding the behavior, regarding the services we use, the expertise we have in biometrics and biometric match, authentication, verification of biometrics and proof of identity. This all makes part of our universe that we have developed in-house. And obviously, we will keep on looking outside to improve our product capacity or more markets to become more and more relevant in this pathway of growth we have established for Valid.

Next question comes from Beatrice to Bressan. My question has to do with the Mobile vertical performance. Can you explain the recovery of Mobile? What can we expect for this year?

Thank you, Beatrice. Well, Mobile for this quarter against the first quarter of last year, the EBITDA had a growth of 50%, as we said, very strong growth in revenue too due to 2 factors: one, a return to regular dynamics for this vertical in general, but we need to consider that the first quarter of last year and always the first quarter in Mobile is weaker -- the weakest one because this is the first month of the year. So the first quarter is usually weaker due to the seasonability of this vertical. But the numbers here represent that we are back to normal for this dynamic of Mobile, especially in terms of the SIM cards. We have stabilized size and also growth in our digital platform. We have gained due to development of eSIM product and there is a market transition that has accelerated and we have seen signs of acceleration from the physical SIM card to the electronic SIM card throughout this year. So we want to have a competence to generate connectivity between devices and MNO and operator or carrier. So having good partners, especially in Asia, we have with Tier 1 clients, we could sell more OEM licenses. So part of the recovery has to do with that, which means that this transition becomes a reality in the Mobile vertical. We are pretty optimistic that in the next few quarters and in 2026 and 2027, the migration from the physical SIM card to digital, safer modalities will help us grow.

Now a question to Fabio. Which will be the strategies concerning operations in Argentina?

Well, Fabio, in Argentina, we have lived through several changes throughout the years. Bressan and I have been here at Valid for almost 5 years. And in the beginning, Argentina didn't give us a lot of results. All of a sudden, there was a political and economic change in the country and we have become almost the single player there. We gained a lot of share there. We could work with higher prices, higher margins. And now in this -- considering this better macro political environment for the country, it's natural that the prices are balanced and more competition arises. What was pretty interesting is that when you look at Argentina through the past few years is that, first, we could better integrate the Argentina operation with the Brazilian operation. So processes that were done more individually, we could start doing them in group, in purchases, in sales, we could explore new markets. I mean, Argentina serves as a basis for maybe Uruguay or Chile or Ecuador markets. So we have looked at these markets with a lot of attention. And just like here in Brazil, we have looked more and more to move into the transactional movement in payments. We also explored this in the Argentinean market. At the same time, this ability through these past few years to generate a higher result in Argentina helped us to balance some of the intra-group accounts that were open in the past that were not so good in the past. Let me tell you that we still have good opportunities in Argentina. There are bids taking place all the time there. But we are considering a more expanded geography. We need to understand how these wins will change the scenario and how can we adapt to better work with them.

Olavo, still from Fabio. The higher interest rate has an impact on the Pay vertical.

Well, the high interest rate does impact the credit environment. However, yesterday, there was another increase of the SELIC interest rate. SELIC moving from 14.25% to 14.75% won't change the credit market. When we saw the less explosion in credits in '21, we were working with a SELIC interest rate of 2%. So we do not see this interest rate going back to that level. But there is another component. The high interest rate has a negative impact on companies that have no balanced capital structure. That's why we have worked on this to strengthen this structure. To base your business on your -- on these interest rates is very good -- is not very good. It's very -- it can be very challenging if you base your business on them. So certainly, this is a bad interest rate for credit in general.

Next question from Douglas to Bressan. Congratulations for your results. Regarding the TAM of new businesses, how can you explore how you have seen the demand for digital government and how you see the competitive dynamics? And what about the contract in Ceara -- in the State of Ceara? Any challenges in Ceara?

Well, Douglas, challenges to implement a new technology is faced every day. This is our routine. eDigital is a market under construction in Brazil. So there's a lot of new technology, new developments. And when we deliver this technology to the state, to the public entity for the digitalization of their journeys, there is always the challenge of this adoption of the digital mindset as far as how to treat the data. This happens in Ceara, in the State of Ceara. This happens in municipalities and also in the federal government. Maybe the federal government has advanced more because of more digital or digitalized journeys and this can cascade down or trickle down to states and municipalities. However, this is pretty good for Valid to explore our abilities and become an important player in this market, because I believe that when you look at the budget that data or technology companies in each states have, we can -- and all of the relationships they have established with different departments of a given state or municipality, then we realized that we need to adapt our go-to-market so we could use not only our team to approach and offer solutions to our customer, but also we started counting all of these companies as a partner to implement these solutions. So summing up, this is an expanding market, a market that demands a lot of services provided by different companies. This market has a mindset that needs to be accelerating in terms of accepting the digital mindset in the vision of public services, but this pathway has no way back. And we will -- we are and we will keep on being an important player and we have a lot of work ahead moving on state-by-state, municipality-by-municipality, also with a presence in the federal government with our solutions. There are some highlights we will update throughout the quarters, but there is this platform of interoperability. We have our benefit card, the journeys that are digitalized, our biometric matches that are done to -- for your identity proof to get your driver's license or other activities or all of the biometrics matching systems. We have very clear road maps for their evolution and also have a good strategy regarding the conversion. We -- in the pace of business closing business contract, it's not always mature for a bid or for a call tender. These are the challenges we face in terms of the speed of penetration. But this acceleration is natural and will keep on being happening in the next few years.

Marco questions, was there any relevant fact that explains the expressive increase in the Flexdoc result in this first quarter?

Well, I would say, this would be the competencies Flexdoc already has because it's within a major Brazilian bank, Caixa Federal. And little by little, the solution scope increases for clients. Naturally, there the topic of IFCVS and more and more processes now, more validations, IFRS within Caixa aligned to looking for customers. This has explained the great performance of Flexdoc.

I would like to add something to this question. I think Bressan mentioned a very important thing regarding the advance of Flex in Caixa, one of our main customer. But what we have seen strengthening this idea that we are not going to buy companies and leave them on the loose. We want to buy them, integrate them into our routine, put our team inside them and bring their team to work with us so we can open more and more doors. So when we look at the Flexdoc, growth has achieved with other clients away or outside Caixa. This pace will increase as well. This is similar to Valid. I mean, to what happens in Valid. The new businesses inside Flex grow even more than Caixa itself, but it's still with a lower percentage. Maybe -- and we are working towards this. Maybe with time, that balance, there was a lot of Caixa unless other businesses gets into a balance. This is happening with Valid. More and more we depend on the company legacy business and rely more on new businesses. So the technology products, commercial teams of Flexdoc, they have been reinforced and keep being reinforced so we can look for more developments at Flexdoc, VSoft and other companies that are part of our portfolio.

Now next question from Matheus. Bressan and Olavo, congratulations. My question turns to Valid's capital allocation strategy. We have several negative examples on the stock market of companies that misuse their cash in the face of a comfortable capital structure. How can we not fall into this track many companies have fallen into?

Thank you, Matheus, for your excellent question. Well, here, one of the main points that plays in our favor is that when we start this history almost 5 years ago of transforming Valid and looking at the capital structure, we were not in the comfortable spots we are today. So the allocation of the money, the money of the company, the money that belongs to shareholders, how to allocate this into new opportunities has to do with our strategy, our balances and checks. So everything is under check. Everything is in place. CapEx committee, analysis of results, there is a scenario that has been developed. When you look at our cash flow position, well, we could be much more aggressive. We could be much more aggressive in terms of some M&As that are there. But when we -- if we cannot understand the valuation, we are not going into that business. We have a lot of diligence. We work with due diligence to prevent that. We love M&As that when we announce them, nobody knows about them because they make sense to us and then we can escalate. So just like Flexdoc, was there any relevant effect? No, it's their competence, their core competence. So the conscience the Board has, the executive team has, this creates a barrier that prevents us from following into this track, as you said.

I agree with you, Olavo. However, I would also say that we have this responsibility to balance present with the future. But above all, what guarantees the results will take place consistently, both in legacy businesses and new businesses is our discipline and our execution capacity. We have our teams that are very mature, a well-established governance with a high level of maturity in the company. There is a Board that understands and provokes us to think in the long run as well. And we keep on being disciplined to follow these steps in the short-term, too. So there's a lot of discipline, a lot of rigor to bring into the revenue matrix, new elements that are more scalable, considering the society we live in that demands more and more trusted services in these digital platforms and this is how we plan to keep on working.

Thank you, Bressan. Thank you, Olavo. So now we wrap up our Q&A session. Once again, I'd like to thank you all for your participation and all of our Investor Relations channels are available to you. I wish you all have a wonderful day. Take care. [Statements in English on this transcript were spoken by an interpreter present on the live call.]