CVC Brasil Operadora e Agencia de Viagens SA

BOVESPA:CVCB3

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, and thank you for standing by. Welcome to the CVC Corp. conference call to release the first quarter '23 results. We have with us today Mr. Leonel Andrade, CEO and IRO; and Mr. Bruno Brasil, the Financial Planning and IR Director. Please bear in mind that this event is being recorded. [Operator Instructions]

This event is also being broadcast simultaneously over the Internet via webcast and can be accessed at www.cvccorp.com.br/ri. You can flip through the slides at your own convenience and also download the file.

The replay of this event will be available shortly after its conclusion. Before proceeding, please bear in mind that today's events may contain certain forward-looking statements made herein relating to CVC Corp's business projects' projections, operational and financial goals and our current expectations and assumptions of the company's management. Investors and analysts should understand that overall conditions, sectoral conditions and operational conditions could impact the future results of the company that will differ materially from those expressed in this presentation. In other words, attaining these results is a consequence of the environment where CVC Corp. is inserted. The data and information presented refer to the company and the economic scenario referring to the first quarter 2023 based on fact, news and assumptions available to the company.

I would now like to give the floor to Mr. Leonel Andrade, who will begin the presentation. You may proceed, sir.

[Leonel De Andrade Neto, executive]

Good afternoon to everybody. Thank you for the introduction, and thank you for your attendance here with us. I will begin the presentation on Slide #4.

And as you can see, we have a rather promising release. Since the fourth quarter, we have been working on structural changes in the company, not only the people, but also structures and mainly a significant transformation in technology. Now in the quarter, we have some very sound news and a very good deleveraging of our business, eliminating the problems that we had last year. We're going to speak about this. And I will be quite quick so that we will have more time for questions and answers.

We had a very strong growth in bookings, which is important for us. After the process of the pandemic, we were still going through an organizational transformation and, of course, we needed a quick leveraging of sales. Now once the pandemic is over, this is the year where the sales have become our main priority through all channels.

I would like to highlight that the sales at the stores of CVC have grown 70%. We have an exclusive channel that is our competitive edge in the market and has proven to be quite resilient and highly engaged. Our franchisees are also engaged and have a considerable growth. We had a growth of 33% in consumed bookings. And this is a very positive data.

If we sold more than we consumed, we're generating revenues. And deferred revenues have begun to have strong growth. We had a very robust business. We are leaders and then some in the cruise operation in Brazil, which, of course, is very positive. One year ago, the sales practically did not exist. And this is a sector that has come back strongly. We're very fond of this sector. It has a low take rate, relatively low. And in the present day times, this is fundamental because of the cost of capital that is ever more higher.

Our expenses have been extremely well managed and we're beginning to see the first signs of our restructuring and of our operation. Although we still have adjustments made during the quarter, our expenses have stood at a lower level than last year. And we see our business growing while we're holding back our expenses. Adjusted EBITDA, we will refer to later. This is the third or fourth consecutive quarter with a growth of EBITDA.

Another very important piece of information is that we've been able to move along with our debt. Of course, this has consumed time and attention of media for months. We have been very successful. We received the full support of our creditors. And if you go back 2 months ago, the market was in a dire position, several companies renegotiating their debt. I cannot assess anybody, but I must say that the re-profiling for us has been very important within market conditions and we have full capacity to manage our debt through our operational performance.

We were also acknowledged as the first place in the category of best travel agency. We have always been acknowledged for this through several awards in the market. We have the Panrotas award, which is an annual award as the best travel agency, and, of course, several other awards that we have won. And we're one of the best and the most professional in this sector. Now despite all of the challenges, we continue holding on to our records.

We go on to Slide #5, where we would like to underscore something with the incorporation of Atlas, which is a B2C sales platform and that connects us to our partners. The transformations are greater efficiency at the company and a better business capacity. We also have a partnership with Livelo in our CVC stores. Customers can use their points purchasing our products at our CVC stores or using this as partial payment.

And our exclusive products are now being managed very well. The only thing that you have to do is advise us with a few months before you will be using these points. And this has enabled us to be highly competitive in new and exclusive products for our customers, highly valuing the main destinations in the country. Outside of Brazil, we have gained strength because of our digital transformation.

Our marketplace is doing very well despite, of course, the fact that the credit market has become highly conservative. But despite this, we have made the marketplace a new attraction, and our growth has a great deal to do with this. And we have new payment methods, including the PIX.

We now go on to Page #7, where I would like to refer to our operational and financial performance, and then we will be able to clarify your doubts. I would like to highlight a very sound growth of consumed bookings, not only in Brazil, but also in Argentina. And to the right, you perhaps will observe something that merits attention, the take rate, which was not satisfactory, is a take rate for consumed bookings, not the new ones. And what is happening here with the take rate all refers to the past customers who bought at the end of the year and consumed their bookings at the beginning of the year. The take rate in the first quarter was 9.7%.

Despite a robust growth, our revenues remain somewhat low. Now there are 3 reasons for this: first, a performance below what was expected in exclusive products. We closed contracts and brought them into the company. We brought in different contracts, different from what the company was used to having, once again, because of the pandemic. And because of this, we changed the structure and the management of products. This is where we had a new niche of products.

And I'm referring to businesses that could be very good for the market. They are not good for CVC, and they're not very good for our acceptance model. We no longer have any of these products to offer. Rock in Rio, large events, once again, these are not CVC events and they should not be.

And our exclusive flights are made and released beforehand with a very dynamic pricing. So we have evolved. We no longer sell these products. We have changed management. We have changed the technology. We have changed the products as well.

Another important point: even in the cruise, where we're leaders by far, we are not having a very good performance. Now as sales were not doing well last year -- and we spoke about this because we have altered technology, B2C, and we had the changed process with the platform impacting our sales. We had a more aggressive Black Friday that ended having a significant weight on our average results. And the products of the Black Friday were consumed by our customers in the first quarter.

The third point that this is simply a matter of mix: very strong sale of cruise products, 17% of consumed bookings in the first quarter versus 2% in the first quarter 2022 and a take rate of approximately 6%. Now given the market conditions, this is very good. We received the money in cash and we do not have expenses in doing this. There is no use of our own capital. And of course, the cruise product has significant growth in Brazil besides other products that we have.

Our products are very robust, and therefore, this area is very important and it has become very representative. And because of this, the average take rate has dropped. In the coming quarters -- if we analyze the one we're in and up to the third quarter, of course, it won't be the season in Brazil, but we will continue to grow, continue to sell, and we have a very positive outlook. Now the main factors that impacted the take rate should not be repeated going forward, and we will attain a higher level of quality in take rate.

We go on to Page #8. Now the 2 main messages here are that our adjusted EBITDA has grown over 100%, which is very sound. We should always be able to do this. And what is even better is that we had very good management of our fixed expenses. Even with the high cost we had at the end of the year, our fixed expenses are much lower than 1 year ago. And our variable expenses have grown very little. We have worked arduously reviewing everything and gaining operational efficiency. Now going forward, I truly believe in a growth of revenues, a decrease of expenses and a more than feasible operational leverage in the coming quarters of this year.

We go on to Page #9. This is, of course, a point of highlight referring to our reprofiling. The market never questioned our credit and much less our credibility. Now credit allows you to have financial conditions to carry on. And our governance is always ensuring that we will continue to maintain our reputation here.

Here, we have something very good. We obtained a very important grace period in the payment of interest. The first installment will be in May of '24 and then in October, that is to say 1 year from now. And we had a debt of BRL 2.2 billion. It has dropped to BRL 750 million at present. So the worst period in the history of the company is behind us, and this indebtedness is more than feasible now with the operational reinforcement we have brought in.

I would like to sincerely thank all of our creditors for believing in us. And we were very successful in this, perhaps the only company. And we will see several companies renegotiating, which is the best position for all companies. Therefore, I would like to thank all of you for your attention. I am at your entire disposal for questions.

On the last page, our priorities are sales and operational efficiency, of course. Now this quarter, despite the fact that we're not satisfied with our take rate, we do know that going forward we have done everything we had to do. The main points impacting the take rate have been addressed. And our performance has not only come back, but it continues and it will continue with that ability of doing business in a better way with an improvement in our operational efficiency. These are the priorities for the year, of course, a strong sales growth and, of course, a focus on operational efficiency.

We're now at your disposal for questions and answers.

[Operator]

[Operator Instructions] Our first question is from Eric Huang from Santander Bank.

[Eric Huang, analyst]

I have some questions. One of the questions is about the dynamic of the take rate. In the second quarter, some of those trips that were sold as a promotion in Black Friday will still carry on in the second or third quarter. Which will be the impact of this? And when will you really have a resumption of your take rate?

The second question. Which is your view of the market in general in the part of promotions, the concentration? Once again, which is your vision of the market?

[Leonel De Andrade Neto, executive]

Well, take rate, what is it that I should be underscoring? Everything that I mentioned here will not be reiterated, even Black Friday. And I should underscore that this year in January, February and March, where we had a high performance especially in B2C, B2C grew again and was the basis of our growth. This is what is responsible for our margin.

But what was important was the growth of B2C that brings about added value. And of course, the business was more impacted by this vis-a-vis last year. And at present, we're 100% robust. So it has a higher take rate. And in the sales of the first quarter, we did not have any margin promotions. Since the beginning of the year, of course, we have launched significant promotions, but this has been done through our partners, through investment in partnership. Nobody can sell like CVC. Nobody has the same capacity.

We do have a new management in the area. And our distribution today is much more scientific, analytic, leading to a higher engagement of our franchisees. So we're going to return gradually, and this is what I believe. There won't be enormous impacts going forward from the events that I mentioned before.

Now there are 2 other points I would like to underscore. CVC Corp. has a very sound competitive policy based on our governance. All of our competitors sell products without delivering them, what they call open sales. They issue tickets or hotels without vouchers. I don't think this means selling a trip. We have never done this and we will never fall into that practice. This is the policy of travel agencies and this is not the way to deliver these products.

Another point. Well, we're paying to be a company listed in the stock market. And I'm a very strong advocate for the regulation of the tourism sector in Brazil. The tourism sector in Brazil urgently requires a strong and very assertive regulation. The balances of our competitors should be audited. And I do believe that any company selling BRL 200 million or BRL 300 million of trips a year could have their balances audited regardless of being a listed company or not.

Of course, we should also base ourselves on other activities referring to regulation. We should, of course, comply with the rules of the Securities Exchange, and all people should have access to this knowledge. If this doesn't happen, we will continue to be surprised because of several companies not having adequate management simply because of the lack of regulation.

Now in a competitive environment, these issues lead to hampering several of the customers and partners. We have suppliers and partners that are deeply concerned with some of these practices. And I see some competitors having these problems. I'm not satisfied with this because this is a problem that impacts all of us. These financial problems impact all of us. And nobody likes failure.

I think that each company should focus on their own governance and be very careful in this area. This is not a structural problem. It's nothing referring to the sector, but I feel concerned by seeing some companies that do things where their accounts will simply not round up. This is something I have mentioned previously. I have spoken at the ministries. I have spoken at state institutions and the legal sector that the tourism sector in Brazil needs to be regulated. And not having a regulation is completely wrong. I hope this will respond to your question, Eric.

[Operator]

Our next question comes from Joao Soares from Citibank.

[Joao Pedro Soares, analyst]

Well, basically, my question once again is for the take rate and B2C. For some time already, you have done important work on data, using CRM, developing an integrated online system, as we saw last year, integrating the brick-and-mortar stores with the online stores, creating new channels to improve your dynamic pricing and much more. And all of this is key, of course, for the take rate.

Now in those points that we see in B2C, which has been the structural performance of the take rate? What is it that you can share with us regarding the benefits of the implementation of this system that you have developed? And looking forward -- we should have a better take rate going forward. Now given all that work that you have carried out, we should have a relevant enhancement in the take rate. And I would like to know the timing and the magnitude of this?

[Leonel De Andrade Neto, executive]

The first point about that efficiency that you referred to, it's important, but it doesn't always fall upon the take rate. If it were not for the work that we carried out last year and our investment in data and pricing and the management through CRM, we would probably have faced more problems with the exclusive products for our customer area that manages this information and that warned us. We saw that we were following a path that was not satisfactory in the management of these exclusive products. And of course, this refers to take rate.

Let's recall the following. The first point in this area is to improve conversion to sell more spending less. And this doesn't impact the take rate. It impacts distribution. The take rate shows you the margin of that operation. Clearly, now if we can sell more investing less, that will increase our efficiency.

Another point I would like to underscore is that today our marketing, 80% of the company investment is on performance. And this also does not appear on the take rate. And it has been ever more better. More than 50% of our contacts with customers are automated. There is no human management in this, everything through our call center and our instruments to follow-up on customers, understand what they do and what they do not do.70% of our sales at present. And even those that take place in the stores have a strong digital component. This is not take rate.

Now the take rate, to become more clear, the B2C sales, the new ones are above 2 digits. What is going to happen is that the take rate will begin to improve because we will be eliminating the past, building something new. It's an issue of mix, an issue of share of participation of each segment. And this will stop being a considerable issue for us. There will be a huge leap in the short-term where we carry on our portfolio and improve the costs.

[Operator]

Our next question comes from Nicolas Larrain from JPMorgan.

[Nicolas Larrain, analyst]

I would like to converse with you about your cash burn and which trends that you foresee throughout the year? Leonel, you mentioned that there will be a decrease going forward.

[Bruno Brasil, executive]

This is Bruno. Let me give you some ideas about that. We can have an evolution in the part of reservations. This is very important in terms of our expenses. And of course, we have operational efficiency. Very clearly, the growth seems to be consistent, and we think it will be feasible and consistent month after month.

We no longer have the impact of Omicron compared with previous quarters. We will have growth, very consistent growth, and we have been highly selective in sales. We only sell when we have appropriate returns, higher returns. Of course, we have distribution through franchises, and we need to enhance our sales focus there.

We clearly respect capital, and we have been ever more effective in our cash management, making decisions on products, sales, investment and forms of payment. As I mentioned here, now we're working exclusively with our own capital and our commitment that has become stronger is to reduce cost or to effectively manage costs.

We're automating our processes and becoming highly diligent in this. And the outlook going forward is for the company to become self-sustainable. We will be able to generate our own cash to nurture operation. Now let's recall that we have no other liquidity event contracted with creditors. And our idea is that maximum in July, mid-year, we will have instrumentalized all of this, and we will, of course, inform you about this.

[Leonel De Andrade Neto, executive]

Now Nicolas, we're saying that the operational results will lead to a deleveraging and 70% of our expenses are fixed costs. But this year, as last year, we will still have a good operational deleveraging. Now with our capacity through this year and the coming year, this deleveraging will continue to move forward. This regarding the operational results now.

When we look internally, which is an account that has had significant weight on our growth, we see this growth curve becoming more stable during the coming quarters with a more normalized growth, of course, eliminating the effects of the pandemic and additionally to the developments of the year 2023, you know that the first quarter has high seasonality in the business as a whole. And it is the heavy quarter when it comes to the requirements for capital. This is also important in our working capital. And with all of this, we round up the creation of cash in the company.

Now in the release that we disclosed last night, we showed that our CapEx should be reduced to more moderate levels in 2023 and going forward because of a more intense cycle that the company decided to do, we began with a more aggressive plan in 2021, 2022 and 2023, and we are now returning to a more normalized level at a level where we will feel comfortable in including a covenant and the debentures that we have just negotiated. And of course, we understand that this will be more adequate for our needs at present.

And finally, the funding activities, we are recomposing the cash flow, and we will be doing this in the coming quarters. And through the execution of this, the heavier payments for the debt principal as well as the interest rate throughout the coming quarters will be paid beginning in May of 2024 and in November of 2024 all the way up to 2026. So in that case, we're already limiting our cash burn. And all of this will enable us to continue on with our activities in the medium term.

[Operator]

[Operator Instructions] Our next question comes from the webcast from Vitor from Asset Management.

[Unknown Analyst]

How much growth can we expect in B2C, considering that the company cash is tight? And which are the savings that you can achieve in SG&A?

[Leonel De Andrade Neto, executive]

Vitor, this is Leonel. I will answer both questions. From the viewpoint of B2C, we're going to continue investing in engagement in the business, in the brand management, the products, the productivity of the company. It's not because of the cash that we will hold back sales. We still have the capacity to grow and the company will continue to perform. Now your second question, the savings in SG&A. I cannot offer you guidance and that we do hope to have highly controlled costs with this efficiency that is beginning to emanate everywhere. This is a commitment that we have in management with a budget with the Board of Management, with our shareholders. Now we're focusing on this heavily and efficiency will begin to appear.

[Unknown Analyst]

Thank you very much.

[Operator]

Our next question is also from the webcast from Luiz Coelho from Inter Asset.

[Luiz Coelho, analyst]

Which is your view of competition with smaller competitors? Have they been able to attain share organically?

[Leonel De Andrade Neto, executive]

Well, Luiz, thank you for your question. Let's recall that the smaller competitors are some of our partners in B2B. They have travel agencies and deep down they're working with us through B2B. I would like to highlight that we want to be a company with a very adequate risk management and we're going to continue looking at the long-term and not doing anything and same with our capital. The growth that we have seen of 44% and 70% in our own travel agency is doubtlessly the best in Brazil. And this growth shows our organic capacity.

We still have not recovered the size of distribution that we had before the pandemic. And despite this, we are still growing. 71% of growth is, of course, outstanding from any viewpoint. Our ability to grow, to compete with small and larger competitors is unique, and I see this as a challenge, a challenge to continue improving. I don't see this as a reason of concern for the company.

[Operator]

Our next question from the webcast from Lucas [ Serkara from Klaus ].

[Unknown Analyst]

Leonel, do you think the regulation of the segment is being debated with strides? Or is it something very remote for the sector.

[Leonel De Andrade Neto, executive]

I have broad experience in life and in other sectors. And I think that this is not making strides, but it will, and it will for the following reasons. The regulators and the suppliers are ever more concerned. It's very common when you speak with the larger suppliers, large global chains of hotels and traveling, there is a concern in the way that competitors manage their business, not only with the end consumer in view with a complete lack of transparency, but also due to the lack of transparency with their own partners.

This is a market where you have air companies making available different types of rates to different types of promotions or customers. You have the corporate promotion, the vacation promotion, and several competitors are using rates that are certainly not adequate. And this leads to a deeper and deeper discussion constantly.

What we are doing as CVC Corp. is speaking to the associations, provoking them and also provoking those external suppliers, the government and all possible suppliers. We cannot continue this way. We can no longer live from these costs. And there are 2 points that I arduously advocate for. We should have self-regulation in sales. We have to continue to discuss this. You cannot sell a product that you don't have if -- you're not a credit company, you're a travel company.

Secondly, any and all companies with minimum invoicing should publish their balance and make the balance available. And this doesn't exist. This is not disclosed. We disclose our balance, which is reliable, which is the right thing to do. And people do not compare themselves to our company.

I'm concerned not with the performance of CVC, but with what will happen with customers. And every time a competitor disappears, this is very bad for all of us. We have the example of banks, where they have created a credit crunch and the financial banking sector is trembling. So I can't say if this will progress quickly or not, but it is something that will become ever more necessary. And CVC Corp. will act as best as it can to turn this into a reality.

[Operator]

Our next question comes from Vinicius from Bank of America.

[Vinicius Saraiva, analyst]

If you could remark on the growth of air blocks, exclusive products and if there is still a future in this modality.

[Leonel De Andrade Neto, executive]

This is a business where CVC has always been very strong. Traditionally, we created new businesses with exclusive flights. Now with a management more focused on efficiency and terms, we have to release this in the sales channels beforehand, and we have to use intelligence for this.

Now this year, we will continue to be very robust, especially for the July season. At the end of the year, there will be hundreds of thousands of seats made available through CVC Corp. to the main summer destinations. So yes, we are attempting to become more and more efficient and do everything with greater assertiveness in this business. This is one of our competitive edges.

[Operator]

At this point, we would like to end the question-and-answer session. I will return the floor to Mr. Leonel Andrade for his closing remarks.

[Leonel De Andrade Neto, executive]

I would like to once again thank all of you and the company will continue on a trajectory of transformation, which is not a short one. Nobody entered the pandemic 3 years ago as CVC Corp. did. We already entered with a very fragile balance, a very high debt, and this was quite negative at the beginning of 2020. The debt was almost unpayable of BRL 2.2 billion, and we had to change most of the managers, including our Board of Management.

We have been improving quarter-on-quarter, facing significant challenges. And I can ensure that this work will continue on and become more assertive. We had a quarter with a high impact on the take rate, which is not good, but this is because of what happened last year. Everything that was generated this quarter leads me to have quite a bit of enthusiasm. The performance that we generated was very positive. And this will be very important now that we work more in the digital world.

Another point I would like to emphasize and that I have reiterated often is this discussion on the regulation. I would like to work with self regulation, but this is fundamental for the market, for the company, for companies and for competitors to have more respect for partners, suppliers by disclosing your balances and working with great transparency to avoid unpleasant surprises. And of course, we have to focus on this. This is, in fact, a highly informal sector, and it's time to stop being. So I would also like to thank all of our associates for their performance, for their help, for the management team that has worked arduously and also thank everybody for their governance. A company without governance cannot be a model for anything. Thank you all very much for your attendance, and we are at your entire disposal whenever you need to speak to us.

[Operator]

Thank you very much. The earnings results call for CVC Corp. ends here. We would like to thank all of you for your participation. Have a good afternoon, and thank you for using Chorus Call.