Cielo SA

BOVESPA:CIEL3

Earnings Call Transcript 2022-Q3

[Filipe Oliveira, executive]

Hi. Welcome to Cielo's Third Quarter '22 Earnings Release. My name is Filipe Oliveira, I'm CFO and IRO, and I will take you through the presentation today.

Starting with the quarter highlights. The third quarter '22 net income was the largest since the second quarter of '19. With BRL 422 million, it was a 99% yearly increase and a 10% quarterly increase on a recurring basis. This was the fifth consecutive quarter of recurring net income year-to-year growth. The company ends the third quarter '22 with an ROE of around 16%.

TPV has grown by 22% year-over-year, reaching BRL 221 billion. And the SMB active merchant base showed growth in relation to June.

Operating revenue posted a sequential growth of 4% quarter-over-quarter and 24% year-over-year, now totaling BRL 2.6 billion in the third quarter '22.

Prepaid volume has reached a new record of BRL 30 billion or a 35% yearly growth.

Acquisition of receivables revenue has grown 20% quarter-over-quarter and 170% year-over-year.

Both Cielo and Cateno has shown robust cash generation with a recurring EBITDA of BRL 1 billion or a 48% year-to-year growth and a 10% quarter-to-quarter growth.

This was another good quarter in terms of efficiency. Total costs and expenses have fallen by 3.7% quarter-over-quarter, and the company has reached the lowest cost ratio in Cielo's history with 0.55%.

Now on Slide #5, this was another quarter of consistent profitability recovery with recurring EBITDA margin reaching 38% with an increase of 15 percentage points over last year and 2 percentage points in relation to the second quarter '22.

Now on Slide #6, the recurring result of Cielo was BRL 422 million, an increase of 99% in relation to last year and 10% in relation to last quarter. Acquiring net income has reached BRL 331 million or an increase of 102% in relationship to last year.

Total recurring EBITDA has shown a growth of 45.2% reaching BRL 1 billion with a growth of 70% in Cielo Brasil and 28% in Cateno.

Now moving to Slide #7, we make a comparison between ROEs in the payments industry in Brazil. Cielo's ROE has reached 15.6%, an increase of 7 percentage points in comparison to last year, now closing the gap to the company's cost of equity.

When you compare industry peers in our industry, we see that there's still a persistent gap between ROEs and cost of equity of our peers. Now looking at the right side of the slide, we make a comparison using the cash earnings view. We basically adjust net income for depreciation, amortization and investments. In that metric, Cielo has 17.3% adjusted ROE in comparison to 2% and 7.5% of peers in this industry. In that view, it shows that the industry still has significant challenges in profitability in this market and there's still a case for change in terms of profitability moving forward in the next years.

Now on Slide #9, we have some highlights of operating performance between Cielo and Cateno. Total TPV had an increase of 18.8% with Cielo Brasil being the highlight with 23.1% increase.

Net revenues have grown by 24%, again with Cielo Brasil outpacing Cateno with 28.2%.

Recurring costs and expenses have grown below net revenues and TPV in both Cielo and Cateno, resulting in a recurring EBITDA growing almost 48% year-over-year.

This was another good quarter for operational efficiency in Cielo Brasil. The company has reached its lowest cost and expenses ratio in history with 0.55%. This reaffirms Cielo is the most efficient acquirer in the market.

If you look at the right side of the slide, we see the normalized cost and expenses have grown 5.5% in the first 9 months of the year in comparison to the first 9 months of 2021.

Now on Slide #11, we have some highlights for volume, prepayment and active merchants for Cielo Brasil. Total TPV has reached BRL 221 billion, a growth of 23.1% in comparison to last year. Total prepaid volume has reached BRL 29.6 billion, a growth of 35.3% in comparison to last year. And the active merchant base has grown by 1.4% in the SMB segment in the last quarter.

Now focusing specifically on the SMB and long-tail segments. The company has seen revenue growing by 28.8 bps in the last year, TPV growing 8.1% over the same period. Total prepayment volume growing 18.1% and total sales productivity growing 40.6% over the last year.

Some highlights for the segment. We've seen pricing repositioning actions leveraging the SMB yield over the last year, specifically over the last 2 quarters. SMB is still the focus of the company. So some main strategic actions have been taken in this segment over the last few months, specifically a new sales force expansion in progress with 400 new salespeople on the ground, actions to improve customer service in the short and long term and data intelligence to offer the right product for the right client with the right price.

Some recent achievements for this segment were the new commercial model that has been showing increasing productivity. So we've seen an increase of 40.6% over the last year and still growing. Our logistics model with 91% of deliveries in up to 2 business days. And prepayment growing 100% penetration since 2019.

Now on Slide #13, we focus on revenue yield. This is the third consecutive quarter of quarter-on-quarter growth. The company has reached 0.73% revenue yield, which represents a growth of 2 basis points over the last quarter.

Now looking at the right side of the slide. On the bridge, we see that this 2 basis points increase was composed of the 3 basis points increase in pricing and a 1 basis point decrease in others, basically client and product mix. These price repositioning actions that have been taken over the last few quarters have had an important positive impact on yield, so we see an increase also on a year-to-year comparison. And we still see lower elasticity. So that means that churn levels and the volume decrease levels are not enough to counterbalance the positive effects of repricing.

The company continues to monitor the market and possible opportunities. We still see that the lower ROE levels of this industry still might have space for increasing prices. However, the company is for now halting its efforts and waiting to see what the competition does over the next quarters.

Now on Slide #14, prepayment products and liquidity. Total capital allocation for prepayment pot products have reached BRL 16.5 billion, an increase of 40% year-over-year. And the company has had a highlight, which is a new issuance of debentures in Brazil with BRL 3 billion issued at CDI plus 1.2%. This was the second lowest spread in CDI plus when compared to similar issuances in Brazil this year. So that reaffirms the company has a very solid financial situation and the confidence of the public and the markets.

Now on Slide #15, we see some milestones and ESG initiatives. Cielo has won top of mind of the POS category in Brazil this quarter. And Cielo has also evolved in its zero racism policies and its diversity in practice initiatives.

With this, we finish this presentation and really thank you for your time.