Intelbras SA Industria de Telecomunicacao Eletronica Brasileira

BOVESPA:INTB3

Earnings Call Transcript 2023-Q2

[Bruno Teixeira, executive]

Hello. Good morning, and welcome to Intelbras' 2Q 2023 Earnings Call. My name is Bruno Teixeira, head of Investor Relations, and it is a great pleasure for me to be here with you today. With us, we have Mr. Altair Silvestri, CEO; Rafael Boeing, CFO; Paulo Daniel Correa, Head of Security; Henrique Fernandez, Head of Communication; and Marcio Ferreira, Head of Energy. This conference is being recorded and will be available on the company's website, where you can also find the slide deck.

You can download it now to follow the presentation. And after the call, you will also be able to find a video playback at our website by clicking the icon below. As usual, in the Q&A session, please use the Q&A feature that you can find at the bottom of your Zoom screen. Please type in your name, organization and the language in which you're asking your question. We're going to take your questions in the order that they are submitted. When we call your name, you will receive a pop-up message to enable your microphone.

The information contained in the presentation and any statements that may be made during the conference call about the business perspectives, projections as well as operating and financial targets for Intelbras are based on the beliefs and assumptions of the company's management and on currently available information. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions, as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic and market conditions as well as other operating factors may affect the future performance of Intelbras and lead to results that differ materially from those expressed in such forward-looking statements.

Now, I'm going to begin the presentation. Okay. So let's get started with the financial highlights. In the 2Q 2023, there was a decrease in net revenue, year-on-year, we reached BRL 978 million. On the other hand, there was a significant increase in EBITDA of 15.8% year-on-year. We reached BRL 137 million in the quarter and also a significant increase in net income, reaching BRL 118 million with a 22% increase. ROIC was at the same level as we saw in the beginning of the year, with an increase of 5.6 percentage points year-on-year, reaching 24.9%.

Here, we have some more details about our net revenue, our track record and this quarter's numbers. You can see the basic revenue and the recurring revenue, there was an increase of 5% year-on-year. And if we compare the first half of this year against last year, that was an increase of 6.2%. And we can see that EBITDA has grown if we compare the full year of 2022 against '23 and also the first half of 2022 against the first half of 2023 as planned.

Here, we have some more details about our EBITDA margin. You can see that although revenue has decreased a little bit, we can see some upsides, including in our gross margin, showing how resilient the company's businesses are. We can also see that our SG&A stood at BRL 38 million, but we had a gain of EBITDA margin going from 11.7% to 14.2%. And there was an increase in gross profit, although there was a decrease in net sales revenue.

Now let's take a look at each business line, starting with Security that accounted for 58% of our revenues this quarter. We can see that the growth in revenue is in line with our perspectives for this year. We can also see that there was a growth against the first quarter 2023. We can also see that the margins have been growing significantly, going from 36.1% in the first quarter to 38.6% in the second quarter. We are continuing with the strategies for increasing our penetration in access control and establishing a bigger presence in the project and solution market.

All business lines, the 2 business lines have shown increases, and there are avenues that allow us to increase our margins. And considering the business as a whole, we can see that there has been an improvement in costs. We have been talking about that since 2Q 2022. We have been seeing an improvement in costs, which allows us to keep margins at a higher level.

Now moving on to communication, which accounted for 24% of our revenues into 2Q '23. We can also see that the gross margin has increased. The revenue is also increasing as planned. If we look at the second quarter of 2022, we can see that there has been an increase of 18%, which is leading the company to a good level of growth in the Communication line in 2023. In the second quarter, we saw the corporate networks and the fiber optic networks increasing. We started the first sales from our new factory in Tubarao. We are producing the last mile of fiber optic cables there. And we can also see a positive contribution from the 5G line with increases in profitability from this quarter.

And when it comes to Energy, our third business line, we can see that it accounted for 18% of the company's revenue into 2Q '23, which is a significant decrease from 47%. And we can also see that there was a decrease quarter-on-quarter. And we believe that that drop comes from the solar energy business, where the market is struggling right now. We have been conservative in our perspectives for this market, but the market is operating at a different level. Micro generation still has a restricted demand. But on the other hand, we can see some opportunities in [ mini ] generation. And those opportunities are being seized by us, and we can see that throughout the whole second half of the year, we are going to see those opportunities emerging.

Energy is not just about solar energy. Our Power business, which is Energy ex-solar, has been increasing consistently and maintaining good margins. If we take a look at the gross margin in the Energy segment, there was an increase of 0.5 percentage points quarter-on-quarter. So you can see that we have been prioritizing healthier sales. And since we are struggling with volume with solar, we can see an effect on our gross margin, which is positive, and an effect on the net revenue, which was not positive.

And now let's take a look at our cash flow. We should pay a lot of attention in inventory management and cash generation since the revenues are not what we expected. We can see that our operating cash generation stood at BRL 94 million, and our good inventory management has allowed us to do that. And the investment and funding lines are according to plan. We went from a cash of [ BRL 1.03 billion to BRL 1.314 billion, ] which is a slight variation, which is very acceptable.

Now let's talk about CapEx. When it comes to expansion CapEx, we are conducting construction works in the new warehouse in the city of San Jose, the state of Santa Catarina. These works will continue throughout 2023 until early 2024. And the CapEx -- our CapEx is in line with our track record and according to our expectations. We always like to highlight in our conference calls the expenses and how they have been evolving.

Here, you can see our track record. You can compare our numbers since the first half of 2020, in which we changed our accounting practices according to the new act that was passed in Brazil. And we can see that our level has been around 16% to 17% historically. And in the first half of 2023, since our revenues were below our expectations, considering everything that happened throughout the year, we can see that we reached 20%. I believe that the level of our revenues and also what can be delivered by each business unit throughout the second half of the year will allow us to adjust our expenses. We have already structured those expenses and planned for synergy gains in the solar business, of course, but in the company as a whole. And we are going to see that level going back to the historical levels over the next quarters.

Now to wrap up the presentation and give you the chance to ask questions, which is the most interesting part of our call, of course, in which we can delve deeper into some topics. I would like to highlight the fact that we have preserved our results, even though the whole scenario now is a lot tougher. We are struggling with solar revenues, as I said, but we have good perspectives for margins and for expenses. We can also see some opportunities to increase our EBITDA and bring a strong result in the second half of the year. The drop in the solar energy revenue is related to the scenario for solar energy right now. And we believe that now, after the first half of the year, we can see a good perspective for improvement in the second half of the year. Of course, we are not going to see a vertical scenario for revenue improvement and growth. I believe that this is a new level that we should consider.

We have now a new competition in this market, and we need to execute well our projects to increase our business. And when it comes to Security and Energy, we can see that the 2 businesses have been growing consistently. And Communication has been giving us good signs for positive perspectives. We can see the results contributing to the entire result of the company this quarter, and I think that will continue to be the case. So these are the key messages that we would like to convey to you from our perspectives. And now I would like to turn it over to you to ask questions.

[Bruno Teixeira, executive]

Let me just take a look at the Q&A box to see the questions that you have submitted. The first question comes from Bernardo, sell-side analyst from XP. Bernardo, over to you. We're going to enable your microphone. Bernardo, can you hear us?

[Unknown Analyst]

Hello. Good morning, everybody. I have 2 questions. The first 1 is about the solar segment. The market expected the segment to cool off. We know that this is a tough scenario right now, but the second quarter usually brings a good perspective due to seasonality. I believe that you have capped prices and not adjusted them. So do you think you could take advantage of prices to gain more traction? If you could give us more detail about the competition in the solar segment, that would be great too.

And also about consolidated margin. The first quarter was very strong, and you surprised us yet again. So I think that you have very clear leverages. Apparently, there are some adjustments to be made still, you showed that in the presentation. So if we assume that we are going to have a similar revenue level without more sharp recovery in solar, would it make sense for you to maintain or even keep the EBITDA margin at the level it is right now?

[Unknown Executive]

[Audio gap]

About more aggressive policy for the second half of the year. Well, yes, we are price-oriented. So most of the times in which there was a quick movement in the market, we were more careful, more cautious. That's why we have been keeping our margins. But yes, we are going to be more aggressive in the second half of the year. That has already started, actually. But -- and I see that some other people asked questions in the chat about that. So we have many projects right now and many contracts for projects that will be executed throughout the whole second half of the year. And we only buy inventory when we have contracts. So that allows us to have flexibility and not drop margins so much. But yes, we're going to be more aggressive in the second half of the year so that we can have a better share of the market in the second half of the year.

[Bruno Teixeira, executive]

Thank you, Bernardo, for your question. The second question comes from Andre, sell-side analyst with UBS. Andre, over to you.

[Andre Salles, analyst]

Good morning, Bruno. Good morning to you and the whole Intelbras team. I have 2 questions. The first 1 is, if we could double-click on the Energy segment and if you could break down the Solar and the Power businesses, and also, if you could give us more details about the growth you have experienced year-on-year in the Power segment, that would be great.

And also, I would like to know more about Renovigi and Intelbras and their participation in the solar business. Was there any difference in the 2 companies' margins? And also in terms of revenue, was there any difference between the 2?

[Unknown Executive]

Well, the Power segment -- first of all, thank you for your questions. The Power segment has delivered what we planned and what we promised. And excluding Solar, the segment has been delivering very significant growth in the business line, including no breaks and other equipment such as chargers. That business has been growing according to plan.

When we look at Renovigi and Intelbras numbers, Intelbras has been stronger throughout this period, and Renovigi has struggled a little bit more. Intelbras is a very strong brand, so it can sustain higher prices because of its brand value. But we also made several adjustments to Renovigi that will allow us to move forward throughout the second half of the year and the coming quarters in a more structured way. We adjusted our expenses and inventory. And considering all of that context, Renovigi underperformed Intelbras.

[Andre Salles, analyst]

And if you allow me to ask another question, does that change your perspective in terms of keeping 2 separate brands? Or maybe -- maybe you are considering consolidating the 2 brands?

[Unknown Executive]

Well, we are going to move on with our strategies. As we said in other calls, we are going to continue with the 2 brands. Of course, we are learning a lot, especially in terms of operating efficiency and logistics and how to gain production efficiency. So we are seizing all synergies we can, but the brands will continue to be separate with separate positions, too.

[Andre Salles, analyst]

Okay. That was very clear.

[Unknown Executive]

Also, I would like to comment that we have some opportunities to establish a different position with the 2 brands. We believe that the 2 brands allow us to do exactly that, to have different positions in the market.

[Bruno Teixeira, executive]

We have 2 questions from Bank of America. So I'm going to merge the 2 questions. And if you would like to open your microphone, we can do that, but I'm going to read the questions that you submitted.

They would like to know more about the price dynamics and inventory cycle. And if we have solar inventory that we bought in the beginning of the year, and what is our perspective for solar inventory. But it is a good opportunity for us to talk about inventory in general. [Luca] would you like to open your microphone?

[Unknown Analyst]

Yes, please, Bruno. I have 2 questions actually. The first 1 is about the solar sales cycle. We can see that your inventory cycle is at 180 days. So I would like to know if you still have that inventory that you purchased in late 2022. The regulation changed for the entire segment or sector. So I believe that your minds have changed as well. So maybe you have a very high inventory level that was purchased at different prices at the end of 2022. And I would like to know what your perspective is in terms of using that inventory.

And also, you have strong margins in Security and Communications. So I would like to know about the effect of foreign exchange on those margins, so that I can understand how sustainable this business is going forward.

[Unknown Executive]

Well, I can address your questions in general terms, and then Marcio will give you more details about the solar business. Well, as we said earlier, the margin is affected by the product mix, of course, in Security and Communication too. For sure, it is also influenced by cost reductions, and the company continues to work on that since last year. So the product mix might not be so good in the coming months, but it is going to be offset by cost reduction, which we are working on. So we believe that the margin that we have posted will continue to be the same, maybe slightly lower or slightly higher, but always slightly. We are not going to see sharp movements.

[Marcio Ferreira, executive]

Okay. Now about inventory. We finished 2022 with little solar inventory because we were selling a lot in the last quarter of the year. So we received inventory with a good price. And for Renovigi, it was different. As we mentioned at that time, we needed to cut costs. And we did exactly that throughout the first half of the year. We have inventory for a few months. It is not the ideal inventory level that we would like, but we have very clear targets for inventory, which is a lesson that we learned in the solar business. But we are not carrying a lot of inventory from 2022, especially in Intelbras.

[Unknown Analyst]

That's very clear. If I could follow up on that question, if you will allow me. The Solar -- actually, the Energy margin has been behaving well, although there was a decrease in revenue that was sharper than we anticipated. But is there any risk since you have a higher inventory level in Renovigi, not Intelbras. Maybe that could impact margins in the second half of the year. But from what I understood from your question, Marcio, that's not the case. The inventory is at a good price -- was purchased at a good price.

[Unknown Executive]

Well, as we wrote in our report, the margins will be a little under pressure in the second half of the year because we decided to take a more aggressive approach in the market. We realized that we need to be more aggressive. So to say that the margin is going to be exactly what we reported this quarter and that gain that we had quarter-on-quarter, we cannot say that the margins will be under pressure. But we want to be in the game because we still believe in this market. The market is consolidating. We still believe in it, but we need to take a more aggressive approach.

Yes, the margins will be under pressure in relation to the inventory that was purchased at the old cost. But the other inventory, the inventory that we are purchasing now, that is going to bring us a margin that is not so much under pressure. The margins will continue to be what they -- what they have been. Of course, they are still part of the inventory that is at the old cost. And as I said briefly, we have larger projects that we have been executing. And those projects were negotiated considering specific purchases that we placed and that is going to bring good margins, as Mr. Altair said.

And just to complement your question, you asked about FX and the effect of foreign exchange on margins. I would like to give you more details about that. We have been decreasing costs at Origin. Our supply chain team has been working hard on it. And once the market stabilized in terms of supply, once we overcame that shortage that we had during the pandemic, we were able to decrease costs. And we have been bringing materials at better costs and reducing costs at the very beginning. And what happened throughout the first half of the year with a lower foreign exchange that will contribute to our inventory. What we report in our COGS is the average -- the mean inventory price.

And in general, we can see a nominal decrease in our inventory. It is lower than the first quarter. So we have been working very hard on inventory management. And of course, that helps our cost efficiency, and that is very important across the 3 segments.

[Bruno Teixeira, executive]

Now let's move on to the next question. We have Christian and Thiago from Itau BBA. The first 1 comes from Christian. Christian, if you would like to open your microphone, please go ahead.

[Unknown Analyst]

Well, I would like to know more about your project ramp-up. I would like to understand how relevant that is in the Security segment and what the effect of that is on margins.

[Unknown Executive]

Well, we continue to invest in this area, of course. We continue to invest in our teams so that we can grow in that segment. And of course, that has a good impact on margins. And I think Paulo can give you more details about that.

[Paulo Daniel Correa, executive]

Hello. Good morning, Christian. As we reported in the first quarter of 2023, this segment has been growing significantly, and we were able to keep that growth in the second quarter. We have yielded great results from it, so our perspectives are very positive, not only in terms of margins. And as we said earlier in some projects, we have better profitability. And we also believe projects are important so that we can explore new potentials in clients and areas. So we have invested a great deal in our commercial team. It was the area in which we invested the most this year. And we believe that we are going to keep that growth going throughout the second half of the year. We should remember that projects happen in the security segment, of course, but also in other segments of the company.

[Unknown Executive]

I apologize, Paulo, your connection is breaking up. So I would just like to complement Paulo's answer. Today, it does not account for a significant percentage of the company, but since we were actually absent from that market -- before, we did not have a presence in the market, and now we do. And our plans are for us to gain share in the security market with the investments that we have been making, and the market has been receiving us pretty well. And that is very positive, of course. And it makes us very excited to continue to invest so that we can keep that growth that we have seen from this segment in the past quarters.

[Unknown Analyst]

I have a follow-up question about FX and the effect of that on the inventory. You said earlier that you are not price-oriented. So I would like to know your perspectives going forward. If you need to adjust prices due to inventory issues and that can help demand, what is your perspective about that? Do you think it is possible?

[Unknown Executive]

I did not understand your question. Is that specifically for Solar or the company as a whole?

[Unknown Analyst]

The company as a whole.

[Unknown Executive]

Okay. Well, as we said earlier, it is a strategy that we have to maintain margins. Of course, we pass on costs to consumers so that we can remain competitive. We are negotiating, and we are negotiating discounts in dollars. And on-grid solar is a market that requires us to adjust prices downwards and upwards very quickly. But that doesn't happen in other segments. In other segments, we can take longer to adjust prices when there is FX variation. So that continues to be our strategy. Of course, as costs go down and as the FX goes down, we are going to pass that on to consumers to keep our competitiveness.

[Bruno Teixeira, executive]

So now Thiago, over to you.

[Unknown Analyst]

I have another question after Christian asked some of the questions that we had here. It is also about the Solar business, because it is the business in which investors are more interested and they ask more questions about it. And 1 of the things that investors ask us a lot is about the effect and what is the biggest effect that is caused by this negative solar dynamic. I believe that interest rates have a lot of weight on this. And also, energy prices are lower in general.

But I would like to know from you, I would like to know your perspective since you are the guys on the field selling the Solar business. What do you think is behind this tough moment in the solar market? And is there any visibility that would allow us to believe that the market is going to recover soon? I believe that the market is longing for that. So if you could give us more color about that, that would be great.

[Unknown Executive]

Well, Marcio knows this business much better than I do. But as I said earlier, the consolidation in the market is very important. There are hundreds of players in the market right now, and they are going to disappear. Many of them are going to disappear. And also, a strong brand becomes even more valuable than it was before, when we were in a hurry to install our equipment.

But right now, things have changed. There are great clients that are not supported by their suppliers. So having a strong brand becomes even more important. Having a strong track record, a strong position and giving the guarantee that we can give to customers is very important. So that is our strategy right now. And also, I would like to highlight once again that there is a reduction of the number of players going on in the market right now. Marcio, over to you.

[Marcio Ferreira, executive]

Well, Thiago, first of all, we continue to be firm believers in the solar market. I was just in a trade show in Asia about that, and the market is very much heated. If we look at other countries around the world that also passed regulations such as the 1 that we have here in Brazil, what happens is that there is a high demand before the regulations and that demand drops.

Here in Brazil, the law changed and the resellers used that as a strong argument. And that increased demand. And we also have a credit crisis. The banks are not approving funding. The interest rates are high. So all of that led to the scenario and the demand that we have right now, which is tougher.

But we -- we do believe that the market is going to recover, maybe not with so many gigabytes -- gigawatts, rather. Maybe with not so many gigawatts this year or next year, but we can see that some customers are orphans, if you will, because the companies that were supplying services to them cannot support them anymore. So I think that we are going to have a very good presence in the market. We are going to recover market share with a structure that is appropriate considering our market share. And we have been working on that.

And there is a future market, of course, that will start to take shape towards the end of 2024 and early 2025. And we believe that the market -- the Brazilian market is going towards that direction. We shouldn't look at this snapshot. We should look at the long term. And looking at the long term, we don't think this is going to be a passing fad. We're not just going to work out of excitement. We are going to work with the appropriate size and structure to make this business work for us.

And structurally speaking, this makes sense. Low-penetration market opportunities. The product is interesting. It does reduce the energy bill for the consumers that invested and have a generator. So structurally, nothing changes. It's just that there is a current context that place hurdles in front of us. The interest rates, yes, of the payback for us right now is shorter than when we didn't have the new law, so the payback period became shorter after the new regulation.

[Unknown Executive]

Yes. And also, our sales are very concentrated. We have traditional clients that buy other products from us. We have residential clients and small businesses that are dependent on funding. They were very much affected by the high interest rates. And also because the financial players are very strict right now in terms of credit. That harmed us as well.

[Unknown Analyst]

Okay. Thank you. Just a very quick follow-up question. You mentioned that other countries went through similar changes in regulation. What countries are those?

[Marcio Ferreira, executive]

Well, Germany is an interesting case that you could take a look. And you can see exactly -- that curve that I mentioned.

[Unknown Analyst]

Thank you very much. That was very helpful.

[Bruno Machado Teixeira, executive]

Okay. So let's move to the next question. We have a question from Marcos. In our last call, you mentioned expectations for consolidation. So Marcos would like to know more about that in the Solar business. What is our perspective about the competitors' behavior? And he wants to know more information about that. And I think Marcio should be the one to take that question.

[Marcio Ferreira, executive]

Yes, sure. Well, consolidation is something that we believe is going to continue to happen. Many importers are simply disappearing. And we believe that only the stronger brands will remain because they will be able to offer appropriate guarantee to the clients. There are many clients that are held hostage. And some clients now have become orphans. They don't have any supplier to help them. And Intelbras has good [ popularity. ] And we can see that many importers and distributors also, they are struggling and some of them are shutting down their businesses. They are not importing solar equipment any longer.

And of course, that is going to impact the resellers because they're not going to be able to provide good services. And I believe that that is going to lead to consolidation. That is not going to happen only here, but also in Asia with the panel manufacturers. As I'm sure you know, there are many manufacturers that are producing other equipment. And we can see that that consolidation movement is happening too in Asia. Yes. Before we had sort of a gold rush, they wanted to buy everything that they could because they would miss the opportunity after January. So it was very easy to sell solar panels, and customers were so much in a hurry that they didn't quite analyze things as they should. They just wanted to install a solar energy system no matter what. And it didn't really matter what company was behind that.

But now in a more restricted market, we're not going to see the hundreds and hundreds of players that were offering those services before the regulation changed. And our partners every week contact us, telling us about the players that simply disappeared. Now -- starting next year, maybe mid next year, we are only going to see companies that are solid and that have a good service to offer. And Intelbras of course, is going to be 1 of them. Intelbras will, for sure, continue to be a traditional brand that provides customers with security when they purchase our products and services.

[Bruno Teixeira, executive]

We have some questions about communication. We have a broader question from Pedro with [ Reach Capital. ] He wants to know more about the growth and also the sustainability of the Communications segment. So I believe that it should -- it will be interesting for us to use the last minutes in our call to talk about Communication.

[Unknown Executive]

Well, thank you very much for your question, Pedro. We are very optimistic about this segment's growth. We have signed some strategic partnerships that are going to give us a good product portfolio so that we can establish a bigger presence in this market. So we do believe in the sustainability of this business. This segment is going well, and it is growing more than we expected, precisely because of those partnerships.

[Unknown Executive]

And just as a complement, our perspectives after we started in this business -- because there is a period in which products have to be approved and so on and so forth. And we believe that after that period, we are going to see a 2024 that is very promising to be Communications segment. Yes. And there are plenty of opportunities in the communication business. Considering the partnerships and the portfolio that we are putting together, there are very interesting opportunities out there for us.

[Bruno Teixeira, executive]

Now we have a specific question about costs and -- expenses, rather. They're asking us to talk a little bit more about where we are going to reduce expenses, specifically. This question comes from [ Rilo ] with 10X Capital. I think it would be a good idea for us to give our audience more details about that.

[Altair Silvestri, executive]

Well, I was leaving that to the end, but I'm going to say it now. This moment that we are going through right now with the on-grid Solar business led the company to reach a level that is much like a ladder or a staircase. We need to take a few steps up, and then we need to rest for a while. And this is the moment where we are resting. We are stopping to recover and think and think about our focus on each business.

We are analyzing and adjusting our processes, reducing costs, costs that we -- that are not going to add any value later. We are adjusting the product lines and adjusting investments, focusing on the more strategic ones. And that process started a few months ago, and it is going to continue throughout the year of 2023 so that 2024 starts with the right foot. And the company is going to be light on its feet to have revenue growth that is healthy, but it is not going to be so sharp as it was in the beginning.

So we are talking about reducing costs, expenses, working on our strategy and our negotiations. This is the moment where we are taking a break. We are resting. It is not the moment where we are hiring people and trying to build a foundation that is so strong that we don't even know what to do with it. But now things are very clear for us. We are now -- we now know how many floors we are going to build on top of that foundation. And that work is going to continue throughout the end of the year so that in 2024, we have a very promising year. And of course, that's going to be the case for the other years as well.

[Unknown Executive]

And well, what -- I just wanted to correct something that Mr. Altair said. You said that the revenue was not going to grow so much. Well, what I meant is that the revenue growth should go back to the levels where it was before, exceeding 20%, and we have plans for that. And expenses, of course, are not going to grow so much. They're going to be at 5% or 6%.

[Bruno Machado Teixeira, executive]

We have some other questions. There is a question about selling the shares of [ Dahua. ] So if we could explain to our audience a little bit more about what happened with Dahua. And I think that Paulo should take that question. And if Paulo has connection issues, I can take that question, too.

[Paulo Daniel Correa, executive]

Can you hear me?

[Bruno Machado Teixeira, executive]

Yes. Yes, we can, Paulo. Go ahead.

[Paulo Daniel Correa, executive]

I apologize. My connection is a bit unstable. Well, about the sale of Dahua. We have a long-term partnership with Dahua, and that negotiation had been going on for a while. We don't have an expectation to do any other movements, and that is not related whatsoever to our partnership with Dahua. Nothing changes in our relationship. It is a long-term partnership, and we had a partnership even before we had a stake in Dahua. And they wanted to do that because they wanted to recognize in their balance sheet the value of the company at the net present value.

So we had that in our plans, and it also gave us more liquidity, which is something that we wanted to have for a while. And it was a collective decision, but we don't have any other perspectives for other movements in relation to that. And more importantly, that is not related whatsoever to our partnership as a whole with Dahua.

[Bruno Machado Teixeira, executive]

And now our last question comes from [ Alfaki. ] He wants to know more about our perspectives for our margins and if we're talking about gross margin or EBITDA margin. He would like to know more about the mix balance and also the balance between margins and costs. So he would like to know exactly what we mean by margins. Well, I think that we are referring to both the gross margin and EBITDA margin.

[Unknown Executive]

Yes, of course, we are considering all variables. When we talk about margins, we are referring to operating margin and gross margin, EBITDA margin, net profits, we want to improve all of those lines. Of course, gross margin is very much related to the competitiveness of the products and expenses. As we said earlier, we try to optimize our operations as much as we can, looking at all processes and how we can optimize them and make them better and more efficient in the company and outside the company, considering the market as a whole. So we're referring to the group of all of those indicators.

[Bruno Teixeira, executive]

Well, we have some questions from individual investors. I believe that it would be better for us to answer your questions individually. We have questions from Ana Paula and Paulo. Paulo is asking a question about solar. And I think that we have already addressed those questions throughout the Q&A session, but we are going to send you questions individually.

I would like to take the last few minutes here to wrap up our call, and I would like to turn it over to Mr. Altair. Over to you, Mr. Altair.

[Altair Silvestri, executive]

Well, I would just like to thank you all very much for your interest in our company, for taking the time to be here with us. And I would just like to convey to you the message that Intelbras is much stronger than what's happening right now in the solar market. We have good perspectives, including in the Solar business. We know with things that are going to happen in a structure in a secure way, but also security with access control, there's a lot to be done, yet there's a huge market out there to be explored. And we have a good share of that market, but there is still room to grow.

We know that from our analysis of the market. And Energy specifically, we know that there are great opportunities out there, and we are tapping into them. We're investing. And Communication, we are now moving towards a new era. In 2024, we are going to be present in other markets and products that have more sophisticated engineering behind them. We're going to establish a stronger presence in those markets. So we are very optimistic. We are very optimistic about our -- the history that we are going to write over the next years. And of course, we have some difficulties in the Solar business right now, but that is good for us to make some adjustments and start off on the right foot. Thank you.

[Bruno Teixeira, executive]

Well, thank you. Thank you very much. I would like to thank you all for being here. Have a good one. And we are here, of course, to take any questions that you might have and that we have not addressed in our call. Thank you. Have a good one. See you next time.