Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (VAMO3) Earnings Call Transcript & Summary

Good morning, and welcome to Grupo Vamos Conference Call to discuss the earnings regarding the third quarter 2023. Today with us, we have Gustavo Couto, Vamos CEO; and Adriano Ortega, Vamos CFO and Investor Relations Officer. [Operator Instructions] We would like to inform you that this conference call is being recorded and simultaneously translated into English. Before moving on, we would like to let you know that any statements made during this conference call relative to the company's business outlooks, projections, operating and financial goals are based on beliefs and assumptions of Vamos management and rely on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other prevailing factors may affect the company's future results and lead to results that will materially differ from those in the forward-looking statements. Now we are going to turn the call to Mr. Gustavo Couto. Please, Mr. Couto, you may go on.

Good morning, everyone. Thanks for being with us in the conference call for our third quarter '23 results. During this period, our diversification and complementarity of the fiscal model has demonstrated important resilience with strong emphasis on the rental and sale of assets -- of the used assets. Going to Slide 4, we show our consolidated results. Consolidated net revenue grew by 7.5% in the quarter to almost BRL 1.5 billion, driven by a 61% increase in Rental revenue compared to the third quarter '22. Consolidated EBITDA grew by 23% in the third quarter, reaching BRL 683 million. Net income amounted to BRL 115.8 million, up 9% over the second quarter this year compared to the third quarter [indiscernible], that was a decrease of almost 22% due to 2 factors we've detailed about. Higher financial expenses and a significant but atypical decrease in the performance of dealerships. As you can see, the Rental business continues to grow with consistent results. Our return on invested capital reach 18.7%, an increase of almost 3 percentage points compared to the third quarter '22 and a new reach of ROIC spreads to 84 (sic) [ 8.4 ] percentage points. This is a result of continued growth in Rental, which puts the company [indiscernible] compared to the trend towards reducing working capital inventory and the fall in interest rates. These improved earnings our -- really our prospects for ROIC spread. At the beginning of September, Vamos shares became part of the IBOVESPA index for the current portfolio, brings together the most tradable and representative companies on the Brazilian capital market and the main indicator of the performance of shares trended on B3. In Rental, we had another quarter of gross net revenue grew by 61% to almost BRL 838 million, and there was an even greater growth of 83% year-to-date totaling BRL 2.4 billion in the first 9 months of the year. EBITDA for the quarter amounted to BRL 674 million, also up 61% and a margin of 90% in the year-to-date, Rental EBITDA grew almost by 77% to almost BRL 1.9 billion. Later on, we'll talk in detail about the performance of the used asset sales. But I would like to highlight the evolution in the sale of assets with a gross margin of 32.5% in the quarter, expansion of 2.3 percentage points compared to 3Q '22, more than 70% growth in net revenue. I thank our team that has performed excellent job to improve our commercial reach in the sector. Our backlog contracted future revenue increased by 33.6% in the quarter compared to the same period last year to a total of BRL 16.8 billion as of September '23. Mainly reflecting the growth of deployment over the period. Our deployed CapEx amounted to BRL 1.2 billion in the quarter with altogether BRL 3.6 billion year-to-date. This is a 6% increase over the same period last year, a year with record growth. To complete my main comments in the Rental segment, I'd like to point out that we reached 40,000 at located fleet assets. In fact, since November, I can say that we passed that mark 88% by the end of September. The most total fleet has already been rented. That confirms our Rental's team commitment to our customers, operational excellence, determination for sustainable growth and focus on return on invested capital. As for the results of dealerships, the industry has shown lower sales volumes for trucks in '23 compared to a good year 2022. That explains, to a lesser extent, the drop in trading volumes. However, this especially in agribusiness, the environment has been more restrictive this year and in the start of the third quarter. Despite the [indiscernible] sale of agricultural machinery in September. Margins were still squeezed due to high inventories throughout the chain. In this context, we recorded BRL 586 million in net revenue at our dealerships. EBITDA margin up 0.1%. Also in the quarter, we completed the acquisition of DHL as announced in August. With acquisitions Vamos consolidate as the largest auto dealership network in Brazil. On the next slide, we highlight the quarterly evolution of our consolidated results. I already talked about the highlights of the third quarter. And Adriano will give more granularity for the business. So I will summarize my comments in the year-to-date comparison with 3 quarters of the year passed, we grew 31.5% of the company's net revenue, more than doubled the sale of assets and net revenue from services grew by 20.6% in the first 9 months of the year. In EBITDA, we grew by almost 47% in the 9-month comparison, surpassing BRL 2 billion. Gross profit, EBIT, an important indicator of the company's operating results grew by almost 40% in the same comparison. I think that few companies or indices has had the opportunity to achieve sustainable growth for so many years. And net income, although down 5% over last year, as I said, we have a greater impact from financial expenses and atypical volatility at dealerships. I am positive that our outlook is positive for '24. Now, I'm going to turn to Adriano, who will comment on our quarterly performance in detail. And at the end of the conference call, I'll back -- I'll be back for the key messages and your questions.

Thanks, Gustavo. Good morning to all of you who are with us in our earnings conference. I'm going to give you more granularity about our performance in the third quarter 2023. On Slide 6, we have ROIC and EBIT since '19, showing the evolution of profitability in the quarter. Looking at the last 12 months, our ROIC [ stood at ] 18.7%, an expansion of 300 points against the third quarter '22, reinforcing a new level of return in our sector of operations. In the chart, we show a comparison with the cost of debt after tax, and as we can see, we have the spread between ROIC and constant debt of 840 points in the quarter, also benefiting from the [ spreads ] and the fall of interest rates. The bottom chart also shows an important evolution of EBIT in [indiscernible]. We have a 7-fold increase compared to 2019 that demonstrates the consistency of our results and resilience of our business with positive long-term traffic. I'd like to stress that with consistent operational growth and optimization of the working capital employed combined with the falling interest rate, our ROIC tends to reach even higher levels. Turning to Slide 8 for Rental and go into more detail for the segment. We saw strong growth in our indicators, highlights 77% in the year-to-date EBITDA. Net revenue grew by 61% to BRL 837 million in the quarter. Net revenue from services reached BRL 695 million in the quarter, almost 60% up compared to the same period last year. When we compare year-to-date '23 to '22, we have seen an 83% increase in net revenue. And the top graph on the right, EBITDA in rental reached BRL 675 million (sic) [ BRL 674 million ] in the quarter, 61% higher than the third quarter '22 and a margin of 90.6% (sic) [ 90.3% ]. At the bottom left, we show the evolution of our revenue split between contracts with and without maintenance. As we can see, we have shown very consistent growth. Rental EBIT reached BRL 543 million in the quarter, an increase of almost 60% compared to the same quarter 2022. Year-to-date, in the first 9 months, the EBIT ratio grew by 76%. Next slide, at the top, we show the evolution of CapEx deployed this year. Approximate BRL 36 billion, 6% over debt deployed last year. Compared to the previous quarter, we had a 15% increase in volumes deployed, demonstrating consistent pace. In the chart below, we show the evolution of the net fixed assets rented started from BRL 8 billion fixed assets in December '22, consistent deployment volumes, [indiscernible] of contract, early returns, accumulated depreciation and other effects. Then we reached net assets rented in September this year of BRL 10.6 billion. It's important to note that out of BRL 190 million of early returns this quarter, the largest portion occurred in July, reflecting the [indiscernible] more restricted credit and commodity prices that Couto mentioned. It's important to add that any assets that were returned early were included end of this [indiscernible] at time of contract. Both can replace the contracts or prepay future flows with no effect on the financial results. Moving on we have the evolution of a rental fleet versus total fleet. In September, we reached 40,000 rented assets, reinforcing our commitment to execution. As of December '22, we have a little deviation total fleet due to the early purchase of Euro 5 assets, but the expansion of our rented fleet is very clean, illustrating the company's continued growth. In the chart, we show the evolution of the allocated [indiscernible] percentage, reaching 88% or 92% if we consider CapEx to be deployed, an important evolution since December '22. Moving to the next slide, we showed the contracted CapEx year to date totaling more than BRL 4.3 billion, demonstrating a consistent pace into generation of new contracts and contributing to the company's gain in scale. The average yield of new contracts in the quarter was 2.61% versus 2.67% in the third quarter '22, resulting the high returns of our contracts. Considering the mix effect of maintenance contracts, which in the contract recent period represented 19% compared to 12% in the quarter and the following future interest curves over the period giving more visibility to the metric we used to approve projects. The spread of our new contracts of the 11 points compared to the cost of debt at the end of the third quarter 2023. This is a reflect of our pricing power through the Vamos ecosystem, efficiency in fleet purchases management and sales. It's important to remember that in pricing targets, we use conservative assumptions regarding asset depreciation, consisting the scenario of a falling yield curve and appreciation of assets currently rented inventory, we believe that will reflect an additional return over the course of contracts. Our revenue backlog totaling BRL 16.8 billion in the quarter. In September '23, a growth of almost 34% year-on-year and 4% over the previous quarter. We achieved quarterly revenue up BRL 776 million and added BRL 1.7 billion backlog through new contracts. As I mentioned earlier, the amount of return in this quarter was BRL 190 million, 22% down from the BRL 241 million in the second quarter. The retired CapEx represents a reduction of BRL 339 million in the backlog. Of the assets that were returned during the year, 24% have already been rented or sold in line with the market dynamics. In the table down to right, we show again a statement of gross assets that generate revenue. Going to Slide 13, I'm going to comment a little about the performance of used car sales. Net revenues amounted to BRL 142 million in used trucks and machinery, a growth of 70% with consolidated gross margin of 32.5%. In addition to the 14 used vehicle stores, there are more than 20 dealerships with digitalized and integrated inventories and a strong potential for expanding our sales reach in a market with a shortage of good assets. Volume of assets sold in the third quarter this year was 816 versus 494 in the same period '22, a growth of 6.52%. We reached BRL 307 million at the end of period. Our trucks and machinery have a book value of BRL 12 billion. Taking into account the 30% margin on the sale of assets, we have an appreciation of BRL 3.7 billion. with a total value of BRL 16 billion, reinforcing the potential for appreciation in the value of our fixed assets. Slide 15, the results of dealerships, especially in agribusiness. The environment was very restrictive at the start of the quarter. You can see in the chart with the monthly evolution, July was typically weak. The red bars refer '23, gray bar to 2022. The falling commodity prices and high interest rates continue to keep buyers away from investments in machinery until the end of August. In September, sales picked up again. Farmers are already aware of the cost for 2024 crop and have started to buy machineries again, as you can see in the September numbers. Inventories across the industry growth and particularly hurts the margin for the quarter. It's impossible -- it's possible to imagine that this type of margins will continue in the fourth quarter. We'll continue to pay attention to volatility in commodity prices and weather conditions in [indiscernible] El Niño, which possible impacts on our business. We believe that higher sales volumes and squeeze margins will continue in 4Q '23 with a possible recovery along 2024. October sales will contribute to the reduction of our inventory and focus on reducing working capital at dealerships. On Slide 17, on our capital structure, at the end of the third quarter 2023. Vamos net debt totaled BRL 8.7 billion, leverage of 3.28x. Net debt EBITDA showing a downward trend. We continued the sale of dealerships in country and implementation of assets available for rental would have been paid out will contribute to lower working capital reinforcing discipline on financial management. We believe we have the opportunity to reduce working capital by more than BRL 1 billion by the first quarter '24. On the next slide, we ended the quarter with a solid cash position enough to cover debt until mid '25, amounting to BRL 1.7 billion. When we consider the available credit lines of BRL 1.3 billion, we have a total of BRL 3 billion. Average maturity of net debt is more than 5 years with average cost after tax of 10.3%. The interest rate downturn gives us a positive outlook for the dynamics of the average cost of debt. Opening for opportunities to improve our profitability. In relation to that, at the end of the quarter, we had BRL 99 million hedge of [indiscernible] against interest rates with an average rate of 11.45% in addition to BRL 1.8 billion of other fixed operations. Now I'm going to turn it back to Gustavo for his final remarks, and I'll come back in the Q&A session. Thank you very much.

Thanks, Adriano, for your presentation. Moving to the final slide. I'd like to reinforce a few takeaway messages. We ended the quarter with a deployment volume 15% higher than the last quarter. Year-to-date, BRL 3.6 billion applied, indicating consistent transformation in the scale of our Rental business. Our rented fleet accounts for 88% of our total fleet, equivalent to 40,000 rented assets. Growth in Rental EBITDA up 75% compared to the year-to-date period and 70% growth in net revenue for used vehicle sales and margin of 32%. The performance proves the value transformation of our asset base, strong demand and our capacity to sell in our point of sale. Despite the typically weaker results of agriculture dealerships this quarter, we have had subtle improvement in sales volume in September. However, margin are still under pressure due to very high inventories in the industry, which may continue in the fourth quarter this year. That will go back to normal as of 2024. We are reducing our leverage, and this is the trend for the coming months with greater optimization of capital employed, reduction in inventory and consistent theme of renting more trucks and machines. As Adriano mentioned, we see a favorable ROIC spread dynamic with the falling interest rates. We transformed the company in recent years. Achieved the leadership and unique scale in the sector. For successive months, we have been growing by BRL 400 million to BRL 500 million in assets deployed. Every month, we moved up to a level generating value for shareholders and society. The company has the opportunity to continue growing consistently and sustainably through efficient management of capital structure. With that, I close our presentation by thanking our people, families, customers, investors and suppliers who trust our leadership and leading role in the sustainable development of the truck, machinery and equipment rental sector in Brazil. We are happy with what we have done so far, but much happier with what we can do in the future. Now we are going to open for your questions. Thank you very much.

[Operator Instructions] Our first question comes from Victor Mizusaki from Bradesco BBI.

I have 2 questions. The first you already mentioned sales and dealerships in the third quarter and you broke down by month. As we are on November 1, can you give us a bit of color on October. And second is about suppliers. If again, you could give us a bit more detail in terms of payments coming for the coming quarters and how we should take a look at this line.

This is Gustavo Couto. Okay. We closed the month of October yesterday. So we are naturally still closing results, but the volume was in line with what we expected, stronger than the average of the year. We still have some questions about the agricultural sector, particularly with the planting process, it was a bit delayed, but the volumes of October were closer to volume in September. We're still closing final numbers, but we already the saw the month very close to what we recorded in September. Of course, we still have to close numbers, right? Because it is 11:00 in the morning of day 1 of November, but it is basically as expected. As for suppliers, I'm going to turn to Adriano to answer the question.

With a drop in inventory and close to what we believe normal, which is 2 to 3 months, that is about BRL 1 billion in inventory. And with the carrying costs with the terms we have with OEMs, our supplier lines go back to it's importance. And reaching in the coming months to close to this BRL 1 billion that we are going to be carrying in inventory.

And just to add to what Adriano mentioned, Gustavo Couto here, when we stop and take a look at rental inventory, most of it has been paid off already. So we eventually have purchases of the quarter that may have some maturity, but with a much lower representativeness. As for dealerships inventory, we have with very little maturity with suspended purchases, so that all means that we will certainly reduce working capital about what we have in inventory today in rental and dealerships and a reduction of working capital in dealerships because we don't have short-term commitments with suspended purchases. So sales in the fourth quarter will decrease inventory and reduce working capital. Thank you very much.

Our next question comes from Lucas Marquiori from BTG Pactual.

I have 2 questions as well. One on CapEx and the 2 about returns, about your capital expenditures. You were more or less flat year against year. I'd like to understand if the BRL 4.3 billion of contracted CapEx. So that includes the CapEx related to the contract with Petropolis or if you can give some signs about CapEx to be expected for 4Q and 2024? It would be nice to have more color on that. The second question, returns. I'd like to understand if you were expecting the level of returns to go down in Q3, Q4 and the following quarters. And if you could give us certain color about what we could consider a normal level? We understand the deterioration of credit, the scenario as a whole, but how long do you think we should take to go back to normal? So these are the 2 points.

This is Gustavo Couto. Once again, thanks for your 2 questions. And always thank you for following our company conflicts. BRL 4.3 billion of contracted CapEx against BRL 3.6 billion deployed, the same base of last year. The month of October was also strong. I can already tell you that October was very strong in terms of new contracts and deployment, so this is also a positive outlook for the quarter with regards to closing the year in line with last year. Just as a reminder, Lucas, last year, we had BRL 4.8 billion deployed CapEx, which is CapEx that generates revenues -- that starts to generate revenues, because we already have a signed contracts. We are at the same pace to last year. Last year, as a reminder, was one of the best years for the consumer goods business, the best in history. And we did BRL 4.8 billion. We are replicating the same BRL 4.8 billion that is keeping the pace. If September numbers follow, I'm not giving you any expectation, but that is to deliver the same volume of the best year of the industry ever with the sale of trucks through dealerships and OEMs dropped almost 20% in almost all lines and the agricultural area showing similar behavior. So what I mean is that we are growing in rental, which is an alternative for customers to renovate their fleet. So we are replicating the best year ever in the industry of capital goods. So we believe fourth quarter is going to be along the same lines, but we still have to work a lot in November and December for lots to happen. In 2024, and again, I'm not giving you any guidance, but thinking that we are going to keep the pace of '22, '23 really transforms the company for the future and also makes us bring leverage to 3x net debt-to-EBITDA ratio, which is the level we are saying it is a recurrent level for the company for us to manage the company from now on. BRL 4.3 billion does not include the negotiations for the 2024 crops in agribusiness or the Petropolis business, because the closing has not yet taken place. We are moving on. You know that this is a public process. We have already developed some stages. In the coming weeks, this is a business to be completed. It is ongoing, but it has not been signed yet, so it is not included in the BRL 4.3 billion returns. Well, if you take a look at our chart number 9, you will see the following. The BRL 470 million from March to July is the period with greater concentration. In March, we indeed had a higher volume of returns that was true along the second quarter and also affected July. So of the BRL 545 million in the 9 months, BRL 430 million are in this period. And then you see August, September, you go down to BRL 40 million. So the number is already going down. So it's not that we expect it to drop. It has dropped already. I think the work has been through. But naturally, because of the size of the company, we may always respect renegotiations. And I don't think it's going to be anything substantial, but BRL 30 million, BRL 40 million is something that we should always consider in our exercises. It doesn't mean that we are going to have it. But at the same time, we will say there is a prospect of growth for the company. There's also a prospect of negotiations and renegotiation with our customers. So it's very good for us to put in to future exercise with some level of returns, but much lower than what we had in previous months. And much more similar to August, September. I hope I have answered your questions.

Yes Couto. Just the BRL 30 million, BRL 40 million would be by quarter or by month? I don't know if I understood this correctly.

By months, when I mentioned August and September, we had an average of BRL 40 million. This is on Page 9. So about, I don't know, BRL 100 million per quarter.

Our next question comes from Guilherme Mendes from JPMorgan.

Two on my side as well. First, about the purchase of Euro 6. It is not a very high volume. But I would like to know a bit about terms. And what is the price point that you think that you finally have as compared to Euro 5? And the second question, thinking of new contracts on Euro 6. What is your target to thinking of ROIC spreads you see ROIC spreads is still kept at lower rates. So what is doable thinking of the use of Euro 6, drop interest rates? Well, the set of variables that you have for 2024.

This is Gustavo again. Thanks for your questions. Purchases of Euro 6. As you saw, we are already close to normal in terms of inventory and assets available for rental, BRL 1.6 billion, a further decrease with the deployments of October. So inventory is going back to the normal levels we have announced to you. Euro 6 negotiations are still ongoing. We do not have any pressure to buy, because OEMs have an inventory. So there is no reason for us to have another early purchase as we did when there was this appreciation of trucks, quite the opposite. We believe that now there's no need to be in a hurry, but negotiations are going on. Retail prices are above the level I mentioned to you at around 10%, some OEMs with 15% over Euro 5 prices at the end of last year. But I'm talking about retail prices, not our prices. Our prices. I'd like to remind you that we continue to be the largest buyer in the country with huge advantage. So we continue to have very favorable purchasing conditions so much so that in the volumes that we bought for Euro 6 that will arrive by November and December for items that we no longer have in inventory. We got even positive terms compared to historical prices of 2, 3 years ago. So we had very good discounts, compared to retail prices, which ensures a very good outlook for the -- let me call first Euro 6 trucks that are already being negotiated and contracted. As for the ROIC spreads dynamics, you know what I always say is the following. We had an average [ ITR ] of 21%. We had 22% before and that so with slight decrease based to a drop in interest rate. But we kept 11% of ROIC spreads compared to the marginal cost of debt. So I see no reason for us to see a decreasing trend in ROIC spreads, in a very conservative scenario 7%, 8% of ROIC spreads per contracts with large fleet owners would be reasonable. But on average, I think we are going to expect longevity as we have today. But of course, this is to be monitored a long time. But I'm very confident that [indiscernible] ITR and ROIC spread dynamics are not going to change with Euro 6, compared to what we have seen so far.

Our next questions comes from Daniel Gasparete from Itau BBA.

First, I would like to compliment you for the disclosure and the breakdown of numbers that helped us a lot. The second is the trend in dealership margins. You talked about the year of 2024, but I would like you to know what that normal would be? Are we going to go back to historical levels? Or are you going to lower levels? And second, about depreciation how you see depreciation and acceleration? Any changes from Euro 5 or Euro 6 trucks? That is it.

Okay, Gasparete, this is Gustavo Couto. Thanks for your questions. Dealerships. We see the following: this is an atypical year again. We see year-to-date EBITDA margin of 6%. The third quarter had a very negative effect. We wanted to show you the month of July and how much impacted our sales volume. So that already explains why third quarter margins were atypically so low. When we look at the fourth quarter, that is already slightly better, but not at the level that we would like or that we believe is normal, so to speak. That is going to happen naturally along the fourth quarter. What we are preparing for dealerships is the following: a huge effort on decreasing working capital. Because you have OEMs, delivering equipment, trucks, farming machinery within a pipeline of planning and production, because the demand was frustrated. The demand was received. We made negotiations suspended in new machinery, elongated terming payments -- the payment terms for us to reduce working capital to have a business with low allocated capital and low cost. We are going to address dealership costs, because margin is not only sales volumes. It's also costs. We already show the capacity to reduce cost in dealerships during the pandemic, for example, in which we had a complete hold to demand and then a pick up. And then we had a huge effort of holding and reducing costs, which is naturally being done as of now, given the current scenario. So this will improve the margin along the fourth quarter. For 2024, then there are 2 things to consider interest rates that will continue to go down, which will favor the capital goods industry. And all those that delayed their purchases, we had a repression. So Euro 5, the prices were too high for Euro 6. Interest rates were up. Now things are more back to normal. So those that did not buy will buy. There's no way. Even historically speaking, whenever that you have a change in level that's what happens. The same applies for agribusiness. Agribusiness may have a seasonal delay. But when you think forward, agribusiness will continue to buy machinery because the sector is expanding. And 2024 despite the weather condition, which is still something for us to monitor. So that the margins for the 2024 crop is a given. We already have practice for fertilizers and pesticides, soybean prices differently from other years where they speculated and the price fluctuated more. Now they know that soybean prices are bit pressure, cost is low and the margin. So they will continue to expand areas and buy machinery. So for 2024, we expect EBITDA margin 8% to 9% for next year. That is picking up, not the level of '22, that was the best in history, but better than '23, to better return levels, better working capital, more suitable to what we saw in previous years. So again, 2023, very atypical and the trend is going back to normal along the year of '24. Depreciation. We do not have an acceleration in depreciation. What we see is that there is an appreciation of our asset base. Our asset base today is at BRL 16 billion considering the past appreciation. I'm talking about [indiscernible] plus market events. So we are talking about BRL 16 billion in market [indiscernible] for our asset base. And based on this very BRL 16 billion in market value for our asset base. And based on the BRL 16 billion, we are going to continue working with a lower depreciation than we have today and even possibility of going lower. I do not see it increasing. Now for new contracts, I always say we are always starting at a conservative event, as Adriano mentioned. So trucks, we work with 7%, 8%. Then as we monitor the evolution of prices along contracts, we can change the depreciation base. And in a 5-year contract, depreciation can even go down. I don't think it will go up, but it may go down. Anyhow, that's the way we work. So I do not see a change that is substantial for our current depreciation rates, particularly considering those new contracts and the BRL 16 billion of market value of our [ field ] assets.

Our next question from Rogério Araújo from Bank of America.

Two questions. First, if you can help us think here about this credit situation and that is leading to the asset pickup is go on. Do we see a similar CapEx level in [indiscernible] truck market with the significant changes in the company's credit analysis policy? And second, we see a marginal deterioration of late payments in the last 2 quarters. So could you please give us a bit of color in terms of how much the credit market deteriorated, your credit analysis and the pace of growth? This is the first question.

This is Gustavo Couto. Maybe Adriano will want to complement my answer, talking about credit specifically. Okay. The resumption did not cause an increase. What we had, as I mentioned in Slide 9. It was a period by the end of the first quarter to the beginning of the third quarter, that is 4, 5 months that we had a higher follow-up of assets that were not performing on the contracts, that were either not performing or could generate some kind of default. And we made an agreement with customers for the return of these assets not to have an active situation. So that happened between March and July, which was the period with greater returns, August and September, this has gone down. So I would say the worst has passed. And that was a prevented proactive effort. Now,Rogério, if you think the context that we renegotiated contracts and has the return of assets, if you stop and think these assets are being readdressed by means of a new rental, an important part of them with good margins, as you saw, on average, more than 30% in the sale of used assets. So that brings us comfort. It's not a problem per se. Of course, it is a bit of frustration in terms of backlog, but it is resilient, because in the cases that I mentioned again, just for you to have an idea, we re-rented with the yield of 2.6%, again, because this is a new truck. It was returned with 1, 2, 3 years out. So we can rent it again, but sell it well given the appreciation of our assets, which contributes to the company's results. So Rogério, this is something that naturally has to be followed. The worst has passed. This is not getting worse. Again, the concentration was more towards the second quarter of the year. But in a preventive conservative fashion, and including some kind of returns for the coming quarters. As for delays, we have 5% leasing rental. That's probably the number you're referring to. If you take a look, the number of customers that we had to renegotiate are basically fit in the palm of our hand. During the pandemic, we've reached 6%, 5% and now this happens, this is a one-off situation. And what we do is that we call customers. We agree on the payment installments and that has been done and they are back to normal. So I think we are going back to the 2%, 3% of delays. We already said that, that could happen in the coming quarters. I remember I said that in the previous call. So this is something you are seeing, but it's not substantial. It does not affect the company's results, but it's true we are monitoring some customers from close and being very agile and using instruments to mitigate the problem. Both the rented assets at 2.6% and the ones that are sold with a margin of 30%. Adriano wants to complement on that. Now let's go to Rogério next question.

Okay, Couto, this is very clear. So my second question is about the pace of growth, the former guidance of 100,000 [ weeks ] for 2025 was removed so to speak, but for us, it's important to have some reference of when you're going to get there? Just to understand the pace of growth of rented fleets to today, you have 40,000. So you would be getting to 100,000 by 2030. Do you think this is a good proxy for the coming quarters? Or do you want to accelerate at some quarter in time? And if so, what would cause the acceleration?

When I joined the company, we had 10,000 assets, 4.5 years ago. Now we are at 40,000 rented assets. So we are growing at a very strong pace. What we did is that we discontinued the guidance of 100,000, because there was an appreciation in the value of assets and that the number of assets is not as important as our capacity to invest and how long we are going to invest a long time. So we want to keep the leverage between 3 and 3.2 net debt-to-EBITDA ratio. So next year, if we keep that at 3x we can invest about BRL 5 billion without any receivables or equity operations. The same BRL 5 billion that we did last year. This year, if we keep the pace of the quarter, but I think we will. So naturally, we would be increasing the pace along the coming year. 2030 is too far. I think we are going to reach the 100,000 before that. But I prefer us to focus on the capacity of investments of the company keeping leverage ratio of 3x, 3.2. And if you see and you do the math, that will transform the value of this company as we did in the last 4.5 years. We are keeping close to BRL 3 billion EBITDA this year. A while ago, if you take a look at our base in '19, we had BRL 300 million EBIT in the company. The last 12 months in September, we closed at BRL 2.1 billion. That is a 7-fold increase in the company's EBIT. So you can even have a proxy for EBITDA. So growth is going to be consistent, respecting the company's balance sheet. This is our guideline for your models. I suggest you do that. Consider the company's capacity to invest growing at the same pace, but keeping leverage between 3, 3.2. I think it's going to be much easier for you to have a model and the number of assets is going to be at consequence of our capacity to invest. And this is going to be transformational when we think of BRL 400 million, BRL 500 million of CapEx deployed every month, which is what we reached in the last 18 months. So I hope it's clear. If not, I'll come back for further clarifications.

Very clear.

Our next question comes from Alberto Valerio Investments.

Couto, Adriano. Two. The first is [indiscernible] for next year in truck rental and also with the pickup of sale of assets for next year, because this year, as you mentioned, was a bit repressed. Do you see a greater demand still for this year for the end of the year or just for next year? My second question would be financial terms. I would like to know if you have anything that is nonrecurring, the BRL 490 million in expenses? Is it due to the size of your debt? What can we consider that it is more or less recurrent? Just first to be able to have a better model from today onwards.

Alberto, thanks for your questions. I'm Gustavo Couto. I am going to answer the first, and Adriano will answer the second. Dealership demand. I particularly see a gradual resumption of demand. It is not going to be brisk. We tried to show you some granularity to show evolution of net revenue. July was bad, was very typical, especially in agribusiness, but then there was a pickup along August getting to a level of September. Again, I'm looking at Slide #4, and you have it with you. The month of September was very close to September last year, which, by the way, was the best months of 2022, which in turn was the best year of the industry. So September was a very strong month. October was close to that, not exactly the same as I mentioned to Victor Mizusaki, but very close to it. So we do see a gradual resumption of demand, sales, offices and trucks are happening, not at the pace of last year. Remember, last year was a year of early purchase for buses and trucks. So the volumes were very high, but volumes are picking up and we did see that in October. The only question I have, whether we are going to have full demand in the fourth quarter is related to the agribusiness. If you follow the equity business, you will note that in the past 2 weeks, there were no rains in the Midwest. It's raining a lot in the South, but not in the Midwest. So farmers of Mato Grosso and Goiás are delaying plenty. So it is likely delay. So now they are waiting for rains to go back to planting, because they will need combines for the next harvest. They will need machinery. So the demand will come. I don't think we can question agribusiness. We don't have a one-off seasonality. You are exposed to weather conditions. But when you think of the overall, thinking of 1, 2 years' time, the demand will come. No one has doubt about what's going on in the Midwest. You go there and you know it's there. The demand is repressed, but it's not gone away. And that is true for trucks and for agricultural machines. So the demand will come back next year with an extra exposure that we have in the agribusiness, because of the price of commodities and weather conditions. That we cannot control, but Brazil will grow in Agribusiness. That's not a question. And so we will.

Alberto. Thanks for your question. This is Adriano. Financial expenses in the quarter, no one-off nonrecurring event. We continue with an average cost of CDI plus [ 2.3 ]. And if you apply that to the balance of our debt you're going to see that we are going to continue more or less at the same pace. So I'm not going to say that nominal is recurring as interest rates go down. Financial expenses will also go down, but with the metrics that I mentioned.

Just a follow-up on Couto's answer. This move that in terms of volume of the resumption already shows a higher volume of rental. So do you see rentals going back to a more adjusted demand?

Alberto, I continue to see the demand for rental very strong along the year. One second, we are 6% above last year. That was an extraordinary year. So we are 6% plus in CapEx deployed on a year-on-year comparison. So I do see a strong demand. The length of October proves that it was a very good month. The last quarter, we grew 15% by deployed CapEx. So the rental demand of that, I'm going to go back to a point that I think is very important. Agricultural machinery down 20%, trucks down 16.5% down in terms of license plates. Remember that the first quarter was still very much in line with the last year, because you're talking about Euro 5 inventories. But in the second and third quarter, you have a drop of 22% -- 23% drop. But still, we have the pace -- the same pace of deployments we had in the whole of last year. So I did not see demand going down. Naturally, we projected even better numbers. But again, the project environment was very hard in the second and third quarters. We were more cautious in closing and deploying contracts, but demand is not calling up quite the opposite. It is very strong regardless of the adverse effects for consumer goods and dealerships. For next year, the demand will also be very strong. What we are doing is that we are controlling growth to preserve returns and capital structure. And that's why I'll say again, the demand is there, and you continue to be there. There's no question about that. The rental model in Brazil is a little explored. We have 1% of the addressable market. This is going to continue growing, but we have to grow in a controlled manner. We have to grow, ensuring good execution of contracts, ensuring the company's balance sheet at suitable levels and considering interest rates and others. So we have to consider our capital structure. We do not want to grow at any cost. The demand is there, but we want to grow healthy with good contracts, controls and service samples. We are not going to hurt the company to grow faster. This we want.

Our next question comes from Pedro Pimenta from [ ITU Investments ].

Can you hear me?

Loud and clear.

Couto and Adriano, congratulations on your results. On our side on the end of the day, the disclosure of [indiscernible] and keeping the company at healthy levels was very good, so congratulations. I have just one question. I'd like to understand the pros of committed lines quarter-on-quarter. In the 2 quarters, you talked about 165 million in committed lines. And this quarter, we see BRL 1.4 billion, which is a much higher volume. I think it has to do with BRL 800 million of last quarter, but I would like to understand the growth, increasing the significant growth in this line, do you see any need for cash in the short term? Because according to our schedule in the short term, you have already a high percentage of commitment with your cash. Also, based on what you answered in the last question you don't have much amortization. So are you preparing more for the years of '25 and '26 because you don't have much amortization in '24?

Okay. The committed lines are revolving credit lines for us to drop was assigned with the [indiscernible] with BRL 1.2 billion. This is available for the company to take credit in the CapEx of new assets. So that's the variation that you see. When you take a look at our CapEx schedule, we have been also working with other fundings, but in the normal course of the business. I think I've answered your question.

For '24. Do you think the focus for '24 is to generate cash?

Pedro, first, I'm going to make it clear to you that today, we have a clear opportunity to reduce the company's working capital because of higher inventory. So we are going to reduce working capital. If you do a quick math here with me, inventory for trucks and paid off equipment is going down and will go down even further. We closed September at BRL 1.6 billion, and we want to be at BRL 1 billion for the next few quarters. And then if we stop and think, the process of buying inventory as we went to alter inventory is going to be based on OEM payment terms. So when we go to this BRL 1 billion, we are going to have at least 50% of that in the suppliers' line that is I'm not going to be paying for inventory as I did along this year, therefore, affecting my financial expenses. So for next year, it will not happen. There is no reason for that. So there's a huge opportunity in terms of working capital. Another opportunity is the inventory of dealerships, typically inventory went up because I cannot stop a ship. When you have a plan for agriculture machines with trucks already committed and retail demand is frustrated, you have to accept that. Now we already renegotiated payment terms, suspended purchases and that is going to be shown in the very short term, fourth quarter and the beginning of first quarter next year. So you're going to see about BRL 1.5 billion of working capital that is hurting our balance sheet today. So we are going to work very hard to be able to enable the company's balance sheet. As always, to be available for the company to continue growing in rental because we want to have at least the same pace of growth next year as this year. Again, I'm not giving you guidance, but just in theory we did BRL 3.6 billion year-to-date till September, BRL 1.2 billion per quarter on average. Last year, BRL 4.8 billion. So we are talking basically of 7 consecutive quarters of BRL 1.2 billion deployed. If you project those numbers for next year, I will continue investing and consuming cash. However, my EBITDA base is going to grow. I'm sorry. I did not realize my line has dropped. Pedro what point of the answer was cut?

You're talking about your EBITDA base.

So I did say that our EBITDA grew 61% in the quarter, and we've reached 90.3% EBITDA in the quarter. So showing that we do have the needs to continue generating cash, which is the main resource of the company to guarantee organic growth in the coming years. So we are going to have the company balance sheet ready for us to continue growing as we did in the last 18 months. We are very much comfortable with that. The idea is really to go back to normal, so that we can invest in our growth and keep pace of growth of BRL 5 billion for next year, not a guidance, just repeating what we did in the 2 previous years with the leverage of 3x, improving accrued EBITDA, keeping EBITDA margins and investing at the same pace with leverage at 3x. This is what we are to do in 2024. I hope I have answered your question.

Our next question comes from [indiscernible] from Junior Investments.

A quick one. Couto, you're talking about the deceleration of contracts. I would like to understand, since you have less new assets being sold in the quarter. What do you see in terms of gross margin for used vehicle sales? Because you're talking about a 30% margin. What is the trend for '24 and 4Q and also the time for CapEx deployment? Now you are more back to normal. So what do you see in this line? Do you think you're going back to the levels of the third quarter '23, end of '22?

This is Gustavo Couto. Thanks for your question. Okay. deployment times, I see 60 to 90 days. basically for some reasons. First, and this is a more specific characteristic of our business. When I have a forklifts contract, it's a longer period. So sometimes, if you have more forklifts in specific quarter, you have more time or customization. I don't know, [indiscernible] foods in trucks or if you have truck tractors, heavier trucks for long haul than the deployment time is short term. So in our models, and we have a service level agreed to operate between 60 and 90 days, which is enough. We can deploy for specific customers in 1 week, but if you think of average time even for your models, I would like to use the reference of 60 to 90 days, which I believe is going to happen. We are going to be able to work in to 60 days. Year-to-date, we are at 70, but if we improve our internal processes, and we pressured the team, we are going to get to 60. What was your first question again?

Oh, yes, margin of used asset sales.

I'm very positive [indiscernible] with the work that the team has been performed. And I invite you to visit our stores. We had a trade show last week, 40 units, dealerships and used vehicle stores with volume sales records margins above 30% as we have been recording in the previous months, so no changes. Both assets that were returned after 2, 3 years and that we decided to sell with a margin of 30% and also those at the natural cycle of end of contract, also with a margin above 30%. And the margin, [indiscernible], should continue because the asset base appreciated a lot. If you go to the slide where we talk about debt, you have BRL 3.7 billion of net fixed assets. BRL 3.7 billion that are to be delivered to shareholders in results for the company, 2 different lines. Keeping lower interest rates based on this BRL 12.2 billion base and also good margins of sales. I'd say that for next year, margins are going to be close to 30%, perhaps slightly down because assets are depreciating a bit less, so it's going to be close to 30%, perhaps not quite 30%. But depreciation will continue low. So we are going to see this BRL 3.7 billion being delivered in the next 5 years. Margin close to 30%, maybe slightly down for next year, but with depreciation at the level that we have today. So that's what you're going to see for the future of the company.

There are no further questions. So we are closing the Q&A session now. We are going to turn the call to Mr. Gustavo Couto for his final remarks. Mr. Couto?

Well, first, I'd like to thank our people, investors, suppliers for being with us. And I will give 3 takeaway messages. First, the rental business continues to grow in a sustainable manner. That is the pace of growth we had this year is a pace of discipline, responsibility for 4.5 years since I joined the company. I thought we would grow with discipline and execution. So our strategic inventory, see the value we are going to deliver in margins for used vehicles and depreciation. When we take a look at the turmoils of the country, we always overcome problems with discipline and execution, and we are growing 70% year-on-year in terms of EBITDA margin, which shows the consistency and predictability of the rental business. This is the first message. We continue confident and rest assured that if we invest BRL 400 million, BRL 500 million a month along the coming years, which is our history in the past of 7 quarters in a row, we are going to transform once again the value of the company for the future. Number two, dealerships. We know there was a market-related situation. And because this is a more retail business, it is more exposed to volatility in the macroeconomic scenario. We are not going to be sorry for what happens. What we are going to do is to work hard to decrease working capital to selling inventory in the coming quarters, you're going to see cash generation from there. We know how to work our dealerships. And we are being modest here, but we know the business. So we are going to work to reduce the cost. And that will also let us resume the healthy margins we had before. 2023 is atypical with a repressed demand and a negative scenario. But for the future, no one questions agribusiness, sales of trucks and the future of the business. So this has been a year for us to do our homework, focusing on reducing our capital and costs, and we are doing this. And finally, my final message, we would like to make it clear that we are very confident about our business model, which is unique. We've reached scale in the sector that is second to none, with purchase volumes, contracts negotiated with very positive return rates. And for next year, growth will continue to happen, and we're very excited about that. Thanks to our team. Thank you for following us. Thanks for critics, suggestions, all that help us continue to grow and develop with discipline and commitment towards our customers. Thank you very much. Have a good day, and have a good holiday.

Vamos conference call is now closed. We thank you very much for joining us and wish you a good day. You may disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]