Eletromidia SA
BOVESPA:ELMD3
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Earnings Call Analysis
Summary
Q2-2024
This quarter, the company reported a 38% year-on-year revenue increase, reaching BRL 186 million. Notably, EBITDA climbed 67% to BRL 83 million with a margin of 33%, up 6.5 percentage points. Adjusted net income also soared 55% to BRL 58 million. The growth is attributed to digital expansion in streets and transportation, adding 800 assets this quarter alone and increasing digital information street furniture by 53%. The company maintains a robust pipeline of new concessions, anticipating continued strong performance and geographic growth in upcoming years.
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[Audio Gap] that took place in this quarter was the LGBTQ+ rate. That's already part of our regular calendar. And again, we were involved as media partners to this event. And this is a movement that is worth about BRL 600 million to the -- BRL 600 million to the siting. The right to exist is one of the main reasons people go to the streets, they take to the streets on the state. And here at Eletromidia, we support projects and partnerships that focus on raising awareness around the matter, transforming society and the leading in this world where everyone can be free to be who they really are.
As for projects, we have started the first one, the sustainable [indiscernible] station. That's part of our green track initiative. The third sustainable train station on [indiscernible] alongside Villimpia and [indiscernible] stations. And this project has the station's name. That is now Station Morumbi will be called Station Morumbi Claro, that shows how mature the advertisers are to design long-term communication strategies. This project has also allowed for a transformation in that station with renewable energy, carbon credits and vertical guidance that made a new step of this purpose possible -- this purpose of transforming cities.
As for special projects, we had a 25% rise in the first half of this year comparing it year on year. EletroHub continues to be a creative driver for the special projects, allowing the main brands in the country to have better experience and more creativity in the consumer journey on a daily basis. And in June, we were awarded the main prize in the out-of-home industry, that was due to our guided bus stop, a project that you're already familiar with. That shows that this project is already known on a global scale, and we're working to scale up this project, and we're going to tell you more about that.
We also had a very interesting project interacting with Global, combining real and virtual journeys. This is something that is becoming more and more multi-screen, multi-panel and better interfaced. Here, you have a soap opera character interacting with the real world on Eletromidia screens. We believe there's a lot of room or across media projects to be developed. And for technologies to be developed that will allow companies to test out and offer the market initiatives for sales and for experience, as we did with Mercado Livre at the start of the year. Big Brother Brazil. Remember that, we presented that to you here. We're learning every day. working with global and we're learning how to use this environment better and better. Let me show you another video.
[Presentation]
And looking at our operations agenda, some updates to you. New agreements, especially in street furniture allow us to invest in digitization, installation and execution of this CapEx. In Salvador, we have 222 new digital panels with clocks. And also in Salvador, we will have 97 new digital panels in bus stops and received 40 new digital clocks and in Fortaleza, 52 new digital panels and in Port Alegre 46 new digital panels in bus stops. All of that comparing to the first half of last year. So that's a year-on-year growth. With these approaches, we have grown 50% when it comes to digital panels in the Street's vertical. This is a real transformation in out-of-home in Brazil.
Now speaking about the 2 main technology initiatives, the ads continues to improve in advance and work with big accounts in the market. So we have the pre-campaign planning data ad. Still talking about technology. SMB, small and medium businesses, that connects to over BRL 25 billion in Brazil. It's a market of BRL 25 billion. Some data on that. We had a 17 multiple growth -- 17-fold growth year-on-year, 6x more recurrence in the website, that becomes a virtuous cycle to a business. There is a 77% increase in campaigns and 11-fold increase in revenue. We have been working on a number of initiatives. We have our go-to-market on our own screens. We now are looking at the efficiency of the digital front and the returns on this investment, be it in search, google words, Instagram, Facebook and whatever other platforms.
We created a new podcast. It's going to contribute to education in the market so that we can have a more favorable environment and that more people can have access to this platform. That has to do with knowledge, new partners in sales and technology. We already have 2 squads working exclusively for Eletromidia, testing out environments and behaviors and specific actions for neighborhood or per category. And now we have the automated service for WhatsApp that is increasing service speed. And that completes the cycle in planning, purchase, creative, all of that happening on the platform.
SMB still has a long way to go. And we believe that the next 2 and 3 years are going to be packed with innovation and development. Still talking about technology and using the two main program platforms. Gamma from Global and DV360 from Google, we had a threefold increase year-on-year. That shows that the programmatic media is growing as we grow with the digital inventory. And as we see more brands that weren't investing out of home, having access to programmatic media. We're going to have more novelties there soon. Technology, creativity and discipline to execute as well as sustainability, all of that structures our actions. They build solid results and allow for transformation in the main cities in the country.
I'd now like to invite Ricardo to present to you the main indicators for the second quarter 2024. And I'll come back from my final remarks. Ricardo, [indiscernible].
Hello, everyone, and thank you for joining our conference call. for us to talk about with the most recent results of the company. The second quarter performance is very positive comparing it to 2023, and we see an increase in all of our year-to-date indicators. In this quarter, our gross revenue was BRL 186 million, totaling BRL 564 million in the period. That is a year-to-date increase of 38% year-on-year. This growth was bolstered mainly due to the streets and transportation verticals with an increase in revenue we had an EBITDA of BRL 83 million and a 33% margin. This is 67% higher year-on-year with a 6.5 percentage points increase in our margin, adding up to BRL 160 million in the first half of the year.
Our adjusted net income was BRL 58 million in the first half of the year, 55% higher year-on-year and a net margin of 11.7%. Our operating cash was BRL 168 million before tax and fees with an EBITDA conversion to operating cash flow that is 105%. When we look at our advertising assets, we had 67,500 panels at the end of the period, 50,000 of which are digital. That is an 800 asset increase quarter-on-quarter, especially the digital ones and 3,300 more year-on-year. In the Streets vertical, we had an increase of 657 new digital panels in comparison to 2023, adding up to 1,884 digital information street furniture pieces, a 53% increase year-on-year. Some static assets were also installed in this category to optimize operating resources and to improve the quality of our network.
This growth is the result of the continuous digitization project in the streets in the past years and also the increase of -- or the addition of new assets including the guided bus stops, the box as well as the bicycle racks in many locations. We have 33,300 screens in buildings with 2,400 screens in lifts being installed in the past year alone, especially in residential buildings. That is a 7.9% increase year-on-year with 636 of these having been installed in the last quarter alone.
In the transportation vertical, we have installed assets in the Santos Dumont Airport and the Gentileza Intermodal Terminal. And with these actions, we have maintained the pace of growth in our networks, expanding streets, transportation and buildings verticals, and we continue to enhance and improve our network to make sure we have a positive impact on the market and so that we can meet the demands of our clients.
As for sales performance, we had a substantial increase. It was BRL 186 million in the quarter, a 34.8% increase year-on-year. Year-to-date, we have BRL 164 million. That is a 38% increase. This increase is due to more recognition in the sector and also to the efficacy of our commercial strategy, not to mention the more mature investments we have in our recent projects. In the quarter, Streets was our main highlight with a 61% increase year-on-year, boosted by the investments in digitization and expansions to new locations and concessions. Year-to-date, we have 53% -- 52% increase, pardon me, year-on-year. In the transportation vertical, we see a 27% increase year-on-year and a 29% increase year-to-date year-on-year. That includes the new contractor agreement for rails and for airports, including the Santos Dumont Airport. In the buildings vertical, we had a 24% increase. In shopping malls, we had a 14% decrease, but we had a 10% -- in assets, pardon me, but we had a 10% increase in the revenue in the quarter and 13% in the first half of the year. That shows how effective our strategy has been.
The advertising sector and the out-of-home segment have a clear seasonality and the second half usually performs better than the first half of the year. Concentrating the results, especially in the last quarter. Historically, we have 40% to 45% of the year revenue in the first half of the year. Our gross revenue in the last 12 months was BRL 1.2 billion. That is a 28% increase year-on-year compared to BRL 1.48 billion in 2023. And thanks to our performance in sales and our cost controls and expenses controls, our adjusted EBITDA was BRL 83.4 million in the period and a 33.4% margin. This result represents a 66.6% increase year-on-year and an increase of 6.5 percentage points in our margin in the quarter.
In the first half of the year, accumulated EBITDA was BRL 160 million, a 58.9% increase year-on-year, a 5.5 percentage points increase in our margin. The year-to-date EBITDA -- or rather the last 12 months EBITDA was BRL 405 million, a 38% increase year-on-year. [But mean] a 36% increase year-on-year with a 38% margin. The operating result has a positive impact on the net income. Net income for the quarter was BRL 35.7 million with a 14% net margin. This is 5% higher year-on-year. It's a 42% increase in comparable basis, excluding the benefits from the tax program that we had in 2023. In the first half of the year, net income was BRL 57.8 million with 11.7% margin, a 54.6% increase year-on-year. On comparable basis, the growth was 166%. In the last 12 months, adjusted net income was BRL 187 million with an 18% margin.
Our cash flow analysis. We had 105% EBITDA conversion and a cash operating generation. The 4 fees and taxes totaling BRL 168 million after tax and interest, it was BRL 74.3 million. In the quarter, operating cash generation was BRL 50.9 million, an increase of 12.9% year-on-year. The first half results were boosted by the positive working capital variations. We had favorable seasonality here. In the quarter, we had payments made to suppliers and the income tax payment as well as the profit share to staff.
In June, we issued new debentures at BRL 800 million with the objective of extending our average term or maturity in our liabilities. With that, we have a loan credit line that is 5 years and 24 months in grace period and the interest rates are 80 basis points in comparison to the last issuance. After that, our rating was raised to AA -- from AA- to A+. Advance payments had an increase in fees and interest. That had an impact on the cash and the net income of the period, but the expenses are going to be offset by the spread and the interest.
In interest, we had BRL 28.4 million, especially focusing on new equipment or devices but for street furniture. We also paid out BRL 12 million in dividends in this quarter. As we informed in the previous video conference with an impact on the financing cash. At the end of the period, we had BRL 235 million in cash and a net debt of BRL 518 million, 1.3x our EBITDA in the last 12 months, that's 1.8x from the previous year and 1.3x from the previous quarter. This is another quarter that we end with strong performance and growth in our financial indicators showing how efficient our strategies are.
And I'd like to conclude by thanking the analysts and market participants who have voted for Eletromidia. In the institutional investor award, we were recognized and the media segment and technology telecommunications and in the first place in 7 categories really showing our commitment. So thank you, everyone.
And Guerrero, please, you may make your final remarks.
Thank you, Ricardo. Another very important quarter with a 38% increase in revenue year-on-year. Our initiatives in technology, in geographic expansion and in metrics and data have proven to be a strong tool to generate value and to create a virtual circle to generate more investment in our platform and our business. As Ricardo said, efficient cost and expenses management efficiency in sales pricing policies that are adjusted using our platform, all of that allows for a 59% increase in our EBITDA year-on-year. It's another very positive indicator, another very positive quarter with growth in our company. We increased our footprint in the streets vertical considerably with digital panels.
We have not only increased our geographic expansion in the cities and ramped up our operations in street furniture and with the digital presence. And that is connected to sales and the platform as well. and that is all based on data and metrics. We have a more and more adjusted pricing policies, and we have more dynamic campaigns. We continue to become more and more digital in the streets and to grow in our digital platform and in our whole inventory in all our verticals. Electromedia ads and the SMB platforms, our technology initiatives continue to make progress. the ads with a new visit and the dashboard analytics allowing for more accuracy in the campaign and better metrics for the results. And Electromedia [indiscernible] is an agenda that continues to grow and develop, capturing value. And every day, we learn a lot about this new industry. This new business model that is being created here in our platform.
I'd like to thank you all for joining another conference call to discuss our earnings. And we're very happy very very satisfied with what we are building here in Electromedia. I'd like to give a special thanks to our Electromedia team surpassing themselves every quarter to deliver better and better results with a company that is ever more interesting with better discipline in execution and cost control. Congratulations to you all. Thank you to our shareholders, to our Board of Administration, who support us and who help us grow more and more in our market.
Ricardo and I will now be available for questions.
[Operator Instructions] Our first question comes from Bernardo Guttman from XP.
Congratulations on your results. I've got 2 questions. The first has to do with your margin dynamics. That's in a very positive trend, possibly because of your verticals and their operating leverage as well. But could you talk a little bit about unit pricing if this better demand has allowed for better contracts. And my second question is to do with SMB. I'd like to understand also progresses in this new vertical. If there is any proof of concept to be carried out or if the business model is already operating in line with your plans.
Thank you for your question, Bernardo. With the revenue increase that we have had in the past 2 quarters, with the operating leverage that we have, it yields a substantial increase in margin. That's why we see 6.5 percentage points in comparison to the same quarter last year, but also with a substantial revenue increase of 34%. When we can make best use of our inventory. We expect to see this increase as we saw in the last quarter of our previous year. EBITDA margins reached 49%. So whenever we can have better sales than we expect to have this impact on margins, too. As for pricing, well, we've been working to sell according to ratings and target audience with analytics being used for after sales, looking at impact so that we can price more adequately, more accurately. And in the course of time, we expect to see that in better pricing of our assets too.
Thank you for your question, Bernardo. As we accelerate our geographic expansion, there are some distortions in the screen pricing comparing markets. Salvador panels will cost differently to Sao Paulo. The price is lower and that changes from [indiscernible] Fortaleza, Porto Alegre. So each vertical will have their specificities and each market will have their specificities in pricing. It's difficult to put together a rationale that is going to allow you to see exactly what the increase is going to be per panel. Now SMB is a constant discovery journey. We work with open innovation, we like to say that we're writing algorithms every day because this is a new platform that is growing by the day, not only with automated sales but also our sales panel with small and medium plants.
We're testing out hypotheses every week, every day looking at different periods, looking at different [radii], looking at policy, looking at different assets and locations, cities, neighborhoods. So it is a large market. We look less at the speed of growth and more at our learnings, our lessons learned and growing correctly. This quarter, we started the education of the market. That's what we call it. There's a podcast that we started. There is investment in digital media for you to have an ROI of what works the best with what media type and using our own panels as an advertising or promotion tool so that you can really show everyone and not only major advertisers. So it is a process.
We had established that last year, agreed on it with our Board of Administration, and we believe that the main KPIs are showing the results with the use of the platform and development. And we have 2 squads I mentioned in the presentation, focusing on technology, working on SMB alone. In 30 to 60 days, I believe we're going to have more information, more data to scale up or maybe to fix the course of this initiative. But it is constant learning. We created an SMB experience room here at Eletromidia, and we can see real time all of the creative content that is being created using AI that also enabled value to this industry. So this is a blue ocean that we have started sailing on now. And we see every day that there is a new Eletromidia to be developed in the next 2 to 3 years.
Cesar Davanço from Santander has a question.
Congratulations on your results. Very solid results. I have got 2 questions. The first one has to do with digital panels. How does that trend stand? How much room for new digital panels is there? And my second question has to do with new concessions. I know it's difficult to predict, but what is your expectation concerning that and the competition for new concessions too.
Thank you for your question, Cesar. As for digital inventory, there are 2 main avenues there. The first one has to do with new concessions, the concession that we were awarded in the past 2 years and that are being installed now. They are they're created digitally already. So they're in line with our present and future projects. And when we look at the Streets vertical, the main stage for the digitization to perform. Every year, we have a CapEx line that looks at buildings, new shopping malls and retrofitting some environments or even replacing some panels that are really coming to the end of their life, but these are the main [indiscernible] choices that we orchestrate with. So new concessions, the potential for digitization and new avenues.
And what this is interesting in Sao Paulo, just to name an example. We have almost 4,000 panels in Sao Paulo. We could get to 10,000. Looking at the Sao Paulo agreement alone and -- looking at our sales dynamics and with our ads platform, there is room for us to more than double our static and digital inventory in Sao Paulo. And when we look at other markets, this logic applies very similarly. So digitization should continue and it should continue on these 2 avenues.
Now to your second question, around concessions, right? There is a road map for concessions, especially when it comes to the Streets vertical. We believe that in the next 3 to 4 years, we are going to have 30 to 40 opportunities of new cities that will be promoting bids, especially in street furniture. This is a natural development process, looking at Tiers 2 and 3 in cities and towns. What the main cities have done, the other cities start to follow suit with more sophisticated street furniture and that allows for companies like us to look at these possibilities and investments in these verticals.
And we're looking at airports and transportation and, of course, organic growth. our main fees is there being residential buildings. So there's a lot of opportunities, and this is an important chapter that we believe that really contributes relevantly to the industry development. The out-of-home industry has 30% of the share. And we believe they could have it in 5 years as it happens in many countries in the world where these bids are more mature where the consolidation is clearer. So there's a lot of room for growth. And we believe that, that will take place through the Streets vertical mainly.
Ramon Fonceca from UBS has a question.
Thank you for taking my 2 questions. We see an increase in expenses and commercial expenses and marketing expenses. So I'd like to understand the references we have there and CapEx was lower than expected. What can we expect on that front?
Speaking of CapEx first. Our expectation for CapEx that will be similar to what we had last year BRL 140 million. Of course, there could be different dynamics in the quarters, especially considering the expansion expected in our concessions. As for the commercial expenses, we did see that line item double in the second quarter of the year. There is a substantial increase in the year-to-date number, which is related to the increase in sales, which is 35% when you look at net income, and that impacts our commissions and variable costs that are related to this increase in revenue. And more than that, we have been investing in commercial solutions for small and medium advertisers, and that also impacts the saline item. In the course of the year, there will be a higher revenue platform, a higher revenue level, and the cost will be reduced as this channel starts to perform as we expect it to.
[Operator Instructions] Jefferson Suarez has a question.
Is there any expectations for mergers and acquisitions in the coming months?
Thank you for your question, Jefferson. We have some core expansion avenues looking at organic growth and new concessions. That's a question that always ask, but M&A is a possibility too. In the past 10 years, we have had about 10 to 12 M&As. So we're always keeping an eye out for that. We have our own M&A structure and Eletromidia and will always be attentive to whatever opportunities we have to expand the core and of course, to look at other technologies. As [Novo], when we bought it to allow us to develop our ads platform. So M&A will always be a possibility to allow us to grow. And we are attentive to any opportunities that are in line, not only with our return rates but also with our growth objectives.
This is the end of the Q&A session. I'll now turn the call over to Mr. Guerrero for his final remarks.
Thank you very much for joining. Thank you for being here for the second quarter conference call. This was another very positive quarter with some challenges and some important messages. We believe that the second quarter is a quarter where a lot is carried out with good opportunities, and our company is well equipped to seize the main opportunities, not only in growth but also allowing for more efficient management, especially looking at technology, technology being the focus of our investments. Thank you, everyone, and see you soon.
This is the end of Eletromidia's conference call. Should you have any questions feel free to send them to our IR team at ri@electromedia.com.br. Thank you very much for joining, and have a good one.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]