Zamp S.A. (ZAMP3) Earnings Call Transcript & Summary

[indiscernible] The teleconference for the discussion of results referring to the first quarter of 2023. Present with us are Mr. Ariel Grunkraut, Gabriel Guimaraes and his Investor Relations team. We inform that this event is being recorded. [Operator Instructions] This event is also being transmitted simultaneously via the web. Being accessible at the address www.ri.zamp.com.br, where you can find the presentation available. The slides will be controlled by us. The replay of this event will be available right after its closing prior to continuing, we would like to clarify that any declarations which may be made during this call related to the business perspective of Zamp, forecasts, operating goals and financial goals are based on beliefs of the company management as well as information currently available to them. Future considerations are not guarantees of performance and involve risks, uncertainties and premises, assumptions because they deal with future events and therefore, depend on circumstances, which can or not happen, may or may not happen. Investors and analysts should understand that general conditions, sector conditions and other operating factors could affect the future numbers of Zamp and could lead to results which differ materially from those expressed herein. I would like to now pass the word to Ariel Grunkraut, President of Zamp, who will start the presentation. Please, Ariel, you may begin.

Thank you for the introduction, operator. Good morning, everyone, and thank you for your interest in our company and for your participation on this results call for Zamp, for the first quarter of 2023. It's with lots of excitement that I'd like to share with you our numbers for the first Q, a general overview of our business and an update on important projects, which are boosting our company into a strategic position in the fast food market. We have advanced in a consistent manner in the first quarter, and we continue balancing the taking back of sales with profitability even in a scenario which is still below in terms of traffic post-pandemic. We delivered a great revenue growth compared to the previous year and an expressive growth or gross margin. We also took back our expansion plan, opening up new facilities, especially for the Popeyes brand, and we can see progress in the results of the new stores. Going to the second slide, we're going to share the key characteristics of the first quarter of 2023. As far as operating revenue, net operating revenue, we've reached BRL 885 million, record for the company in the first 3 months of the year, which represents growth of over 10.5% versus the first quarter of 2022. We have reached a consolidated gross margin of 65% in the first quarter of '23, an advance of 120 basis points compared to the same period previous year. 45% of the Zamp sales in the period are already identifiable strategy, which reinforces our data lake and allows us to advance in our hyper personalization and profitability efforts. Beyond that, we got a growth of 35% of our digital sales versus the first quarter of '22. Our adjusted EBITDA ex IRFS 16 showed a growth of 15.4% compared to the same period in the previous year. Finally, we have opened 15 new facilities, 13 of them are Popeyes and 2 or burgers our portfolio towards profitability. In this quarter, we reached the milestone of 1,000 stores in Brazil. Going into the next slide, we see the financial performance of the first quarter. Zamp reached a net operating revenue of BRL 885 million, a growth of 10.5% compared to the first quarter of '22. Besides that, our digital sales for another quarter present relevance reaching the revenue of BRL 350 million, a growth of 35% compared to the same period of the previous year. Zamp gross margin was 65%, a growth of 120 basis points when compared to the previous year, showing that the strategies of revenue management, strategic sourcing and digitalization of the company have proven incrementally sound semester after semester. And after the sales bounce back control of the expenses and the advance of our digitalization, we have reached in the first quarter of '23, and adjusted EBITDA IFRS 16 was BRL 51 million, a growth of 18.4%, reinforcing, once again our consistent progress, growing our profits in another quarter. In this quarter, the same-store sales recorded by the BK brand were 6% in the Papas brand 9%. With that, I would like to pass the word to my partner and CFO, Gabriel Guimaraes, so that he may cover important aspects of the financial performance of the company.

Thank you, Ariel, and thank you, everyone. On Slide 4, we have presented the progress of our restaurant portfolio. In the first quarter of 2023, we have concluded the opening of 15 new restaurants and we closed 5 restaurants as part of our optimization strategy. For the Burger King brand, the openings recorded in this quarter were 2 restaurants, 1 same-store and one franchise. Besides that, as part of our nationalization brand, we have opened 13 APIs brands. All of them in the food court format, that way, we have ended the quarter with a total of 1,000 stores all throughout Brazil. Going into Slide 5, we presented the progress of our net operating revenue and our same-store sales for both brands. As we said, in this quarter, the net operating revenue was BRL 885 million, a growth of 10.5% versus the first quarter of '22, with same-store sales of 6% for the Burger King brand and 9% for the Hopes brand. As we can see on the right-hand side, the net operating revenue recorded in the last 12 months was BRL 3.7 billion, a growth of 25% compared to the results presented in the previous period. Going to Slide 6, we show the net sales for the Bergen brand, which reached BRL 826 million in this quarter, a growth of 9% compared to the same period of the previous year and a record for the brand in a first quarter ever. This result was boosted by successful initiatives like the campaign in partnership with Nutella turning us into the first fast-food chain to be able to use the Nutella brand together with the dessert category, generating very expressive results for this growing platform. On the other hand, few campaigns above all and the child and premium categories did not have the performance aligned with our expectations in this quarter. These initiatives, which are for a limited time, have already been corrected and adjusted so that they may contribute positively with the results of the next few periods. As we have said, we'll continue to find a balance and finding the best balance between profitability, growing revenue to maximize the operating results of our restaurants. On Slide 7, we see that the Popeyes brand in the first quarter of 2023 continues a strong expansion trajectory and expressed in 7 states plus the capital and have reached a net revenue of BRL 48 million, a growth of 37% compared to the same period of '22. At Popeyes, as we grow, we are able to leverage our investment, building the brand and trials, which will be fundamental so that we may be ever more present in the Brazilian consumer habits. By this strategy, we disclosed the sponsorship by NBA and the campaign realized with our chef Henrique Fogaça. Although it contributed in a partial manner to the results, they will have a fundamental role in the results in the year's growth plan. Going into Slide 8, we can see the constant evolution of our digital channels represented by delivery, self-service totems and tea. In the first quarter of '23, the realized sales done through these channels totaled BRL 350 million, a growth of 35% compared to the same period of the previous year, and they represented approximately 40% of share over the total sales of the company, a progress of 730 basis points compared to the same quarter of last year. On Slide 9, we show you our digital ecosystem and its constant evolution. We closed the first quarter of 2023 with almost 17 million users recorded in our CRM and 45% of our sales identifiable. With the progress and the enrichment of our data lake, we're able to know our consumers better and better, and we're able to execute in a more precise manner, individualized and hyper-personalized offers, as we saw in the previous slide, our basically doubled its number of sales compared to the previous quarter, and it continues to be a huge opportunity for us to leverage efficiency, experience and profitability. Our self-service totems an initiative which has combined a better user experience with gains in average ticket and gross margin represented 20% of Zamp's revenues. We continue advancing with our rollout of this functionality for most of our restaurants. Besides that, we closed the first quarter of 2023 with 26 restaurants, which have 100% of their service being done digitally. And until the end of the year, we intend to have 100 restaurants in the automated format. Delivery continues to be an important revenue driver for the company and it represented 15.8% of our sales in the period. Comparing against the first quarter of 2022, the total delivery sales grew 150 basis points, which shows the strength of this channel and the opportunity to see how revenue -- incremental revenue. Our hybrid delivery, which didn't mean much to our revenues in the past already means 55% of the channel share, boosting profitability and expanding our geographic coverage. Finally, we present the data from our loyalty program, the BK Club, configured as the biggest loyal restaurant loyalty program in Latin America. At the end of this quarter, we reached 12 million users. The program has contributed directly to the personalization strategy and the growth of the average ticket per user through especially a higher frequency. Going into the next slide, we see our MCMP SG&A. You can see that the cost of goods sold maintained its progress and represented 35.4% of revenues in the first quarter of 2030. This number was reached based on 3 pillars: revenue management, strategic sourcing and data. In the centerpiece of the slide, we can see that the cost of the sales expenses are also included, and we saw a growth of 90 basis points compared to the first quarter of '22, called by the increase in costs with labor related to the severance payments more hours due to the new restaurants and also the reallocation of work labor contingencies, which used to be accounted for in SG&A but based on their nature are now accounted for in personnel expenses. This effect had an impact of approximately 100 basis points for the quarter's results. We see constant progress in fixed expenses, especially in rental and utilities in a way that we've been able to get a severe reduction in expenses. The right, we see SG&A. We saw a slight growth compared to the first quarter of 2022, especially due to a runoff of approximately BRL 5 million. As we have said, we've made important investments and we have our corporate structure organized to reach the objectives of the company. Therefore, we will continue to make a progress to reach operating leverage in the next few quarters. Going to the next slide. Our adjusted EBITDA IFRS 16 was BRL 51 million in the first quarter of 2023, a margin of 5.8%. This results maintain growth of 18.4% and a marginal growth of 40 basis points when compared to the same period of the previous year. Based on the sales growth in our efficiency, we can see in the center chart that the adjusted EBITDA for the last 12 months totaled BRL 345 million with a margin of 9.3%. To the right of the slide, we can see the loss in the quarter of BRL 55 million, BRL 24 million above the first quarter of '22 due to the growth of expenses with depreciation and amortization and a higher impact on the financial results coming from the interest rate curve and the new financing lines of the company that the company has taken on. Going to Slide 12, you can see the operating cash flow reported in 2023, and it was BRL 3.2 million, a reduction of BRL 53 million in cash generation, especially due to a temporary mismatch of working capital at the end of 2022. Looking at the last 12 months, we presented the EBITDA cash conversion above. Going to Slide 13, the reported CapEx in the quarter of 2023 BRL 79 million, a growth of 33% compared to the first quarter of 2022, which supported the taking back of the expense and during the inauguration of 15 new restaurants and many other initiatives in our expansion plans. Beside that, we maintained our investment in technology, maintenance and retiling of our assets, which represent important contribution of the operating results of the company. In the following slide, will our strong capital structure. At the end of the year, are our growth total gross debt reached the level of BRL 1.99 billion, which resulted in a net debt of BRL 642 million. The company continues to deleveraging curve with a net debt/EBITDA in 1.9x, which puts us in a better position versus the first quarter of 2022. In the below chart, we can see the aging of our debt. And we should see that we have no significant overdue amounts in 2022. And we also reinforced our plans in BRL 100 million in financing, and this will contribute to the good operation of the business. In this way, we closed our financial section, and I pass forward once again to Ariel, share with you our priorities for the next quarter and for the year of 2022.

Thank you, Gabriel. Our brands, Burger King and Popeyes have a strong macro decline and innovation pipeline scheduled trial into the frequency of billets and improve the foot traffic in our restaurants. This lighter with Stranger Things and post. We are positive about our licensing efforts in the quarter to continue having drivers to boost traffic and sales in our restaurants with the maturing of the Popeyes brand and going into new markets, we believe we'll revenue level which are higher heal. You should reinforce that our investments in important platforms, sensor platforms, like, for example, we're going to analyze contention and we will be a superiority of our we have a committed in having a great capital allocation, and we in order to improve our margins ever more, and we also manage our portfolio looking for the best. In terms of technology, a technology will continue to represent a strong driver for our business, collaborating specialties in all the areas of the company. We continue to reinforce our digital initiatives to be -- to provide the best experience sales innovations made more and more. All of these investments are ready represents and will continue to represent a constant progress of our brand awareness, indicators, bringing efficiency to various lines of our P&L. We have shown that we are ready to take back our expansion plan, focusing on the execution and growth of our Burger King and Popeyes restaurants. The mapping of new locales opportunities and the white space identified has been identified, and we are prepared to capture the best opportunities and to allocate the capital in a vile manner. Thank you, guys. Operator, please, let's go to Q&A.

[Operator Instructions] Our first question comes from Mr. Thiago Bortoluci from Goldman.

I have 2 questions that I would like to talk about. The first one is with the buildup of our PK during the quarter, please correct me if I'm wrong. Thanks on the conversation in channel checks that we have, it seems like you started January, February in a very good wave and the industry saw the exploration in March and our same-store sales, almost were flat during the last month. And the first question is to understand your build-up of same-store sales and the question is trying to quantify the impact of the campaign you mentioned that you had a codon few campaigns on child campaign and on premium campaign in the quarter, right? And so when I think about the mix of the revenue, how significant or the growth and what the value of the year because, especially if I compare it to your competitor, I think that they have a core portfolio and a little bit more scalable, and this gives you more forecastability. So I mean, the first question was just to understand the buildout of the quarter and how much of that was due to the campaigns and how significant are those campaigns to your revenues? And what kind of impact can you see in the future regarding campaigns? And second, in terms of expenses, -- and here, I see that your G&A reported increased 20 basis points year-over-year. At the same time, Gabriel said that the reclassification of the contingencies may be worse than the situation... Basis points. And so try to do the calculation does it make sense then your 20 basis points? And what is the section for that growth for that deleveraging? How should we look at this? Those are in...

Thank you so much for your questions. I'm going to start with your first one first. You are right with your calculation [indiscernible] a bit stronger [indiscernible] for some time. We've been trying to always I hear you have in revenue the gross margin in order to maximize our numbers. We did see lesson the revenues for the impact and the revenues, slightly below what we had expected. It very much due to the performance of what we've seen pentane during February and March, especially in the premium in kids categories, which did not perform as we had expected. And as Pei said, these platforms we have already adjusted now in the second quarter recently, and they coincide with a very important period, which is a high seasonality period, which is Mother's Day here. So we're going better prepared into this day in order to make up the results of our payers. Our retail business, goggle depends on various platforms. Therefore, you have a bit of a challenge in telling you how we would believe how our competitors behave as behave and platforms behave. But yes, we do depend on the retail of you having to be consistently getting it right more than you're getting it wrong. In the platform Cabela that in desserts, we are the first restaurant network to have a partnership with Nutella, for example. And this brought us a very significant result. So there are many platforms which end up being leveraged to deleverage according to their performance. And we had 2 important ones, which were premium kids, which did not perform that well. So that is what I see and what I see is that we have to find a balance and therefore, we're not going to try to gain more market share and lose profitability. Our objective is to have a good balance. And finally, I think the digital sales like Gabriel said also continued to be driven. And we continue firming deliver at the end of the year a same-store sale of the company and with the margin better in the price in the first quarter shows a little bit of this strategy and we gave the flat margin to grow [indiscernible].

Thank you for your question. [indiscernible] mature of it due to the major intent would be to be a therefore on it for all provided a ailment, which is fixed. Phenomenal on the quarter of last year, this is the basically saw a difference in the 2 and only the -- there was a story of the labor contingencies, which reached an amount of BRL 10 million in the and therefore, when you reconcile it with for you that different -- and that is combined to a runoff effect that we had in the quarter, as I said before, of approximately BRL 5 million. So that's a nonrecurring effect related to expenses, which happened in the third quarter of last year. So in comparable basis, we should have an important benefit looking forward. First, in a mindset a marginal growth, but this is a line that, as I said, we are in have the structure set up, and we've made important investments throughout 2022. And therefore, the level that we closed less per is already higher than we put this year that we higher than what we did last year. But now we start to see important operating leverage with the growth of the revenue was above the inflation.

If I could just ask a follow-up question -- can you tell us more about the metering BRL 5 million.

While nonrecurring as a company, an important new company event and a few other initiatives which happened in the third quarter this year, we anticipated it to the first quarter, the numbers and mismatching periods.

Our next question comes from Vinicius [indiscernible] from Bank of America.

Congrats on the numbers. We see another quarter with a growth in the digital self-service and health service totem phenomenon. What kind of efficiency are you able to taste with the digital initiatives? And where are the other opportunities, especially in terms of the health service, how do you see the NPS scores or customers in HR using tools, especially in the stores which are a percentage. And in terms of ore, we want to know if given the location profile these restaurants and our potential -- there's a potential potent to be ensured by other restaurants of yours. And I know it's recently using the customer base. Do you have a indication that those sales are being absorbed by the other stores.

Thank you for your question. What is important to highlight here what is perhaps a little bit different from the peers digital sales shown to be more profitable than demand digital sales due to various aspects. But mainly, I would like to highlight that through artificial intelligence within our totals were able to find an average site we were able to get a higher average ticket annual push more profitable preantral focused on only focusing on average ticket of profitability challenge in our app is elite we have seen through our investment in because that the titans is above with a net presentational viewing or we see a statement that we already especially in stores where the consumer seems more satisfied with the interaction with Nutella and a transactional manner and other things that are very important for us is the gain in labor. Today, just so you have an idea, around 15% to 20% of our restaurant labor is protect labor. Therefore, in the rest the digital sale or a sale, you also see labor efficiency gains. And finally, we also see higher availability. Then 4, we also saw that at the stores with 100% of total that we can capture a higher number of transactions then when these stores didn't have 800% to. 7 made the changes in the 30 restaurants, which are more self-service. We've been monitoring the investments some time, and that's why we've been mining our linear 100, which were totally healthy -- so we are also going to store mattering as well as the expansion of new stores with 100% discommoded. So those are the way escalates start to see in the next few quarters, we should start to see more efficiency on the labor line, and that also will allow a higher knowledge in an -- for the enforcement and this eon. Enforcement...

[indiscernible] regarding the that we had in the quarter, the main profit of the closing of these assets is not is because there is a impact between the level of revenue and the operating deleveraging with expenses and therefore, the book buses profitability, and they have a variance of the fact the company comp because they have very low sales these assets, in which therefore were not profitable, therefore, they are part of a strategy of portfolio management, which will continue to feel very active, especially in the second quarter, and we still have a few adjustments to be made in order to improve the performance of the working capital -- it's hard to say if the residual volume of e-restaurant has been divided into all the other stores, which are within the same radius because these are stores with an average low average ticket. So it's hard to say if we're able to capture as a brand that small volume of these assets that we ended up closing. But the view is board's profitability, all right? And delivery as a component of the eventual loss of space on the street and compensating, litigating the total value loss given that many times they can through the digital channel guarantee that the person who favor experienced have access even though there's not a physical store close by.

Our next question comes from Laura Hirata.

In terms of your portfolio management, I would like to know how I can think about this quantitatively, how can I think about the impact of the store closings and EBITDA margin if we were to reconcile these dollars -- how could we do that? How could we think about doing that? How could we think about these variables? Beat another question regarding Popeye, which has progressed beyond Sao Paulo. How has the acceptance of the brand been in other regions and what do you see in terms of the speed of maturity of these stores, and that's it.

Thank you, Laura. I'm going to start with the portfolio management needs. Essentially, these are projects which have an average sale and a huge operating deleveraging way below a mature store in the portfolio, trying to help you out get a reference helping you to quantify 30% to 40% of underperformance versus the traditional stores. And these assets, many times due to the combination of these revenues due to the high rental costs and other fixed expenses at the restaurants, which are not flexible. They end up being a negative EBITDA at the restaurant level. And obviously, when you combine an outflow of revenue with an increase in nominal EBITDA, this has an important effect in the cash generation as well as the consolidated our year-to-date EBITDA of the company. And therefore, this is a very important initiative. When we look throughout 2023, we saw the retailers taking to same. This should happen in the next few years, a portfolio management for a company which grows this quickly will continue to be an initiative in our plan. in terms of sales in antenna area in stream. [indiscernible] has said, starts to lead the Sao Paulo Rio de Janeiro regions and start to expand in various other capitals very aligned with our expansion plan with the opening of stores, olefin and malls. This is a thing which is still unknown to the Brazilian public. Therefore, we've been in precall more, but in the new region, Slide 2. We're still not very well known. But what is interesting to see is that if we consider the annual revenue, and this has -- this has worked out very well in other regions where we have launched the Puppies. But today, we have restaurants making an average sales of BRL 3.1 million per year which puts us into one of the key fast food brands in Brazil, even comparing to giants, which have been here for a long time, like Burger itself and direct competitors. This shows our capability of execution and also shows a sustainable advantage -- competitive advantage, which is the ability to advance into complementary revenue streams. Our expectation is that Popeyes could in the next few years could be close to 80%, up to 90% of the VK levels in the same places. This shows you that we still have lots of room to grow, given that today, Popeyes and comparable store sales is close to 60% of an upper booking store performs. What's the main driver? The main growth driver for Popeyes is trials experimentation and gains of scale trials experimentation because we believe that we have the best product in the category and scale because as we have more and more restaurants, proportionally, we also have more and more investments and the possibility of more consumers trying our brand. One of the important highlights is that this year, we start to have Popeyes to CPAs more intensely in the media throughout the month of March, we launched a very interesting campaign with a popular chef here Henrique Fogaça launching a [ Toplife ] product, and we have just launched the launch of a few new sandwiches, MBA themed sandwiches for the teams, which are in the playoffs, which have shown performance for the brand in revenue and for the trials. Therefore, we understand that this spot growth will continue to happen. Of course, it's not equal to our BK EBITDA. We're basically 60 basis points from a BURGER KING brand, but one [indiscernible] BRL 3.1 million , and they get to BRL 4, BRL 4.5 million per store, then we start to see this EBITDA very aligned with BK brand, which is here and has great structure in Brazil. And the sales leverage will provide pre operating leverage and a great part of the cost that we have are fixed. Therefore, when we analyze the gross margin for clients, coming from the synergies that we have been able to gain from the BK brand, we see the gross margin -- the gross margin for Popeyes being very close to the BK gross margin. Therefore, the grade of course that we expect in the next few quarters is the growth of revenue and operating leverage of the restaurant expenses and costs.

Our next question comes from Ulises Argote Bolio with JP Morgan.

Just a quick follow-up regarding the closing of the stores. Do you have a closing forecast for us? How many stores will be closed this year?

Thank you, Ulises. Thank you for your question. Look, we -- until the end of 2019, we used to do something around 10, 15 closings per year. And we do take up to looking the MA since the contracts were inflation adjusted and with the new sales volume. And there are a few places where we have to intervene. And we should see another year where 10 to 15 Burger King assets will be closed first started in the first quarter, and we will conclude these closings in the second quarter. And like I said, it has got a very relevant impact not only on the year-to-date margin of the company, but also on our return on investments.

[Operator Instructions] We now close the Q&A session. I would like to pass the word to Ariel for his final comments. Please, Ariel, you may continue.

Well, we would like to close our call here thanking the participation and the questions. Thank you for your participation and questions. And we are at your disposal, us and the Investor Relations team are at your disposal in case of any additional questions. Thank you, and have a wonderful day.

Thank you. The Zamp’s call is now ended. Thank you for your participation. Have a wonderful day.