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

[Operator Instructions] We would like to inform you that this videoconference is being recorded and will be made available on the company's IR website, www.ri.zamp.com.br, where the complete material of our earnings release is also accessible. [Operator Instructions] We emphasize that the information contained in this presentation and any statements that may be made during the videoconference regarding the business outlook, projections and operational and financial goals of Zamp constitute beliefs and assumptions of the company's management, as well as information currently available. Future considerations are not guarantee of performance. They involve risks, uncertainties, and assumptions as they relate to future events, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operational factors can affect the future performance of Zamp and lead to results that materially differ from those expressed in such forward-looking statements. Today we have the presence of the company's executives, Mr. Ariel Grunkraut, CEO; Mr. Gabriel Guimaraes, CFO; and Investor Relations team. I would like now to give the floor to Mr. Grunkraut, who will begin the presentation. Please, sir, you may proceed.

Thank you for the introduction, operator. Good morning, everyone. Thank you for your interest in our company and for your participation in this earnings conference call of Zamp Q4 2023. I'd like to share with you our results and a broad view of our business and an update of important initiatives that are boosting our company to a strategic position. Despite a quarter that is presenting signal, signs of recovery, this period was marked by some important sales lever and pricing situations, profitability increase, generation of cash flow and execution of a robust plan of expansion of restaurants. With that, we believe that we are well-positioned to capture good opportunities for 2024. Going to the second slide, we're going to share the main highlights. In relation to the net operating revenue, we reached the milestone of BRL 1.1 billion, which represents a growth of 2% compared to the fourth term of '22. In relation to '23, we reached a growth of BRL 8.3 billion. Our gross margin consolidated was 70.5% in relation to '23. An increase of 450 bps in relation to the same period of the previous year. From those 420 bps for nonrecurring effects. In this period, the digital sales of the company grew 30.8% in relation to the same trimesters of the previous year, reaching 46% of the sales of the company. Currently 47% of the total sales are identified. In this quarter, our profit was BRL 59.3 million, a growth of 41% compared to the same period of the previous year. This quarter was also marked by the opening of 44 restaurants, 39 of the brand Burger King and 5 of Popeyes. Besides that, we had the delivery of 17 remodeling projects. Thus we closed the year of 2023 with the opening of 74 new business units among company-owned and franchised, with a total of 1,039 restaurants; BK and PLK. Concluding that, aligned with our dream to impact in a positive way the lives of people, we received for the second year in a row the certificate Great Place to Work. That shows the feeling of pride and shows that we treasure the good work environment for all our employees. Going to the next slide. We see the performance -- the financial performance highlights of Q4 2023, in which Zamp reached a net operating growth. Besides that, the digital sales for one more quarter presented relevance, reaching the revenue of BRL 495 million, a growth of plus 35% compared to the previous year. The gross margin was 70%, a growth of 450 bps compared to the previous year. Adjusting the nonrecurring effect, the evolution would be 24 bps compared to the same quarter in the previous year. We reached in the fourth quarter of 2023 an adjusted EBITDA of BRL 227 million, reflecting a continuous work of costs and expenses, seek for efficiency in cash generation, even in this slow scenario. In this quarter, the SSS, same-store sales, registered by Burger King was minus 2.4% and Popeyes plus 4.5%. This being said, I'd like to give the floor to my business partner, CFO, Gabriel Guimaraes, for him to be able to cover the main financial highlights of the company.

Thank you, Ariel. Good morning, everyone. In slide #4, represents the evolution of our restaurant's portfolio. In the fourth quarter of '23, we opened 44 restaurants, being 23 company-owned; 21 of the BK brand, and 2 of the Popeyes; and 21 franchised, 18 BKs and 3 PLKs. Besides that, we passed 11 to franchise and we closed 8 restaurants, 4 company-owned and 4 franchised, all in the BK brand, following our trajectory of portfolio optimization. Thus we concluded the year with 74 openings and 1,034 restaurants in Brazil, among them 778 company-owned and about 300 franchised. Moving on to Slide #5, as we announced last quarter, we now have a new design for the new restaurants, the Royal Pavilion. Among the 44 openings in the fourth quarter of 2023, 19 were in this new model. This new format brings some different important differences as a better distribution of the sales channels and 100% digital stores, which makes us more efficient. We believe that this format will impact in a positive way the experience of our clients in our Burger King restaurants, improving experience and increasing the average sales. Following the same line of thought, we concluded over 100 remodeling and modernization projects, totaling 50 assets in 2023. We have been finding interesting results in this capital allocation vector, seeing some revenue increase, a better experience for our clients and many times occupation costs renegotiations that are favorable. Moving on to Slide #6. We can see the evolution of the net operating revenue in the same-store sales for both brands. As we said before, in this quarter, the net operating revenue was BRL 1.1 billion, a growth of 2% compared to the fourth quarter of '22, with an SSS of minus 2.4% for Burger King and plus 4.5% for Popeyes. As we can see in the graph on the right, the net revenue for 2023 was BRL 3.8 billion, a growth of 5.4% compared to the previous period. Moving on to Slide #7. We present the sales net revenue for Burger King brand that reached BRL 900 million in the quarter, aligned with the quarter of the previous year. In this challenging consume for the restaurants, according to Cielo and Stone data, the fourth quarter of '23 was marked by campaigns that aim to increase attendance in our restaurants. After October and November, in a weak movement, we saw a swing in the trajectory of SSS, especially in December, with the launch of the Platform 2x25 with our iconic Whopper. In Slide #8, we see that Popeyes reached in the fourth quarter of '23 a net revenue of BRL 70 million, an increase of 44% compared to the same period of 2022, and the same-store sales of 4.5%. And after 5 years of presence in the Brazilian market, 3 of them in the pandemic, we had an expressive growth. We reached new markets, opening new stores in Parana, Bahia, Pernambuco, Goias and Paraiba in Brazil. This scale gain in Popeyes, its paramount because we can capture more investment and generate -- experiment a little more and create a routine with the Brazilian and increase the average sales per restaurant. Going to Slide #9. We can observe a continuous evolution of the digital sales, represented by delivery, self-service totems and app. On the third quarter of '23, the sales performed through those channels, totaled BRL 495 million, a growth of 35% compared to the fourth quarter of '22, and represented approximately 46% of the total sales of the company, an increase of 11 percentage points compared to the same period in the previous quarter. And this growth was mainly caused by the totems because it's a healthier transaction for the company. In Slide #10, we see our digital ecosystem. We concluded the fourth quarter of '23 with 20.2 million users enrolled in our CRM and we reached approximately 47% of sales. With the evolution and the enrichment of our database, we can act in a more precise way to individualize and customize the revenue management, boosting sales and gross margin. As we saw in the previous slide, our app already represents a big part of our revenue and it's a great way to experience profitability and experience. Our self-service totems, an initiative that aligns a better experience and a better average sale, represented 29% of Zamp's revenue, an increase of 22 percentage points compared to the same period of last year. We go on covering increasing this functionality for our restaurants and we closed the year of '23 with 84 restaurants that already own 100% of its service in a digital way, without any human interaction. The delivery is a great revenue driver for the company and it represented 13% of our sales in the period. And to finish that, we present the data of our loyalty program. At the end of this quarter, we reached 17 million users and we believe this is a great lever to explore, and we are still observing great results in those first 2 years, but there are many opportunities to be captured here. Moving to Slide #11. We see our cost of goods sold and SG&A. On the left, you can observe that the cost of goods sold is expanding and represented 29.5% of the revenue in the fourth quarter with the tax one-off effect of approximately BRL 47 million. But cutting this nonrecurring effect, we keep seeing consistently the evolution of the gross margin of the company. And we reached this progress based on 3 pillars; revenue management, strategic sourcing, and technology. At the middle of the slide, we see that the expenses with sales in the restaurants represented 45.3% of the net revenue of the company, the growth of 500 bps compared to the fourth quarter last year, mainly caused by the increase of labor costs related to claims and take rate. Following 2023, we concentrated our efforts in this digitalization front to become more efficient in this staff and personnel. And relating to occupation, we saw a better scenario, but not actually priced with the smoothing of IGPM that is going to be better in 2024, contract renegotiation and utilities with some free market telemetry and distributed generation of power. On the other hand, the migration of the labor claims as we disclosed in the previous. Now it's in the sales expenses in 2023. We included that and it impacted in 330 bps in the operating revenue from, what, 190 bps was one-off, just to update our probable labor claims. Excluding this effect, the expenses with sales would be increased 169 bps relating compared to the last quarter being part of that with the new restaurants and an inflation update for the expenses, highlighting the minimum wage in Brazil that was readjusted in 70% and affected relevant parts of the endpoints of the company. On the right of the slide, we see our SG&A, our general and administrative expenses, suffered a decrease in relation to 2022. This fall in SG&A was caused by the synergy and with the corporate adjustments in the company and the reclassification of labor claims that were part of this line in 2022. Going to Slide #12. Our adjusted EBITDA was BRL 227 million in the fourth quarter of 2023, with a margin of 21.1%, an increase of 6% compared to the same period in the previous year. The result was caused by a continuous work of reduction of costs and expenses to adapt the company to this slow consume scenario -- consumption scenario. And on the right, we see a profit in this quarter superior to 2022 as a result of taxes and financial performance. Going to the next slide. We see that the operating cash flow reported in the fourth quarter was BRL 211.4 million versus BRL 216 million in the previous year as a reflection of the advance of the professional activity mitigation in the operating capital and some liabilities. And now we have some tax credits for the quarter as well. Going to Slide #14. The CapEx reported in the quarter reached BRL 117 million, an increase of BRL 35 million compared to the same period in the previous year. This observed increase is a result of our expansion strategy for the year, our investment in technology, maintenance of the portfolio and remodeling of the 17 restaurants that we mentioned before. The total investments for the company in 2023 was BRL 376 million, 6% superior to 2022. In the following slide, we see the structure of capital of our company. On the fourth quarter, our indebtedness total was BRL 1.1 billion, that resulted in a net indebtedness. And then we had to leverage the company twice. In the graph below, we see the aging of our debts. The company has concluded the liquidation of the capitation of BRL 700 million through CRA emissions issuances in February, an amount that will be used to roll the debts of 2024. In this way, we finished the financial session, and I give the floor again to Ariel to share with you our priorities for the next trimester of 2024.

Thank you, Gabriel. We'd like to share with you our scenario of prioritizations for the company, divided in 3 important pillars. The first is our focus on the year, that is sales and traffic. Our brands, Burger King and Popeyes, allied with a strong commercial strategy, the maturity of the sales channels, investments in media, and a robust pipeline of campaigns, licensing, and innovation. We will chase the increase of the sales frequency, generating profitability. The second is the experience. As we announced in previous quarters, the company has begun the process of modernization, remodeling of restaurants, focusing on the experience of the clients. This initiative, and some others that we'll prioritize along the year, will be very important vectors of growth and to attract clients to the company. And our third pillar is the focus on expansion. We're going to emphasize for over 1 more year our strong plan of execution and expansion of BK and PLK in the country. The mapping of new opportunities and white space identified makes us prepared to capture the better opportunities, the best opportunities and allocate capital in a diligent way. With this, we enter 2024 really, really excited and aware of our priorities, challenges and strengths. And we move forward very confident because we are well positioned and we are capturing growth opportunities for us to explore this market in Brazil. Thank you very much. Operator, please, you may start the Q&A session.

[Operator Instructions] I'd like to give the floor to Mr. Ariel.

With that, we'd like to conclude our earnings conference call for today. I'd like to thank your participation and your questions. And we are here with our RI team in case you have any additional questions. Have a great day, you all.

The Q&A session is ended. And now the earnings conference call referring to the Q4 2023 of Zamp is concluded. The RI department is at your disposal to answer additional questions. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]