Positivo Tecnologia SA

BOVESPA:POSI3

Earnings Call Transcript 2021-Q3

[Unknown]

[ Audio gap ]

Positivo Earnings Release. My name is Renata Oliva. I am the IR Officer, and it's a great privilege to be here with you. I'd like to introduce Hélio Rotenberg, the President; and Caio Moraes, Chief Financial Officer and IRO.

This conference is being recorded, and it will be made available at our website, where you can also find the presentation that supports this conference. [Operator Instructions]

I would like also to mention that any statement related to business outlook, projections and operating goals of our company are the belief of our administration as well based on current information available. Forward-looking statements do not guarantee our performance because they refer to future events and thus depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, market conditions and other operating conditions may affect the company's performance and lead to results that materially differ from such forward-looking statements.

Now I'd like to turn it over to Hélio to start the presentation.

[Helium Rotenberg, executive]

Good morning, everyone. I'm very happy to be here for this quarter's release. We'll see that our results have been quite consistent. And let me talk about the fourth quarter so that the market can rest assured of what's going on with our company.

Our revenue achieved a record, and these numbers have been consistent over this year. So BRL 979 million in this quarter, and our annual EBITDA, BRL 348 million, another record. Our gross revenue, 63% increase over the last 9 months, up by 78%. Gross margin 24% as well as compared to what we had last year. And last year, we also had some revenues coming from taxes. And that's why the number seems to be lower, and adjusted EBITDA much higher than in the previous time period.

Next slide, please. Our highlights for this quarter. I'd like to comment and say that we have grown in every single business unit, consumer, corporate and government. We're very happy that as soon as the exclusivity we had with a smart payment machines with Cielo ended, our team started to work. Now we signed a large contract with Stone, and we have a very strong pipeline with many new buyers and sub-buyers, many retailers. This is certainly a very relevant market, and we are very strong with a large, broad portfolio, not only with the smart machines, but we also added some payment machines in order to broaden our portfolio, also high-volume of sales in computers, 58% increase year-over-year.

And what we see is that our growth avenue is also presenting good results, such as HaaS, 120% increase against the same quarter last year. Thanks to the corporate market and also increasing HaaS considering the corporate market itself. As for government organizations, this is a unique situation, and we have been operating in this market for the last 30 years, but I have never seen so many RFPs and bids.

We have already signed contracts, and we are to be signed that accounts for BRL 1.7 billion for the fourth quarter next year, BRL 450 million this year and the rest for next year. And that, just as in the corporate market, we see this growth, this hybrid and in-person work. So companies are now replacing their equipment, and they are also adding and buying notebooks and tablets for students via the secretariat of education municipal and state level. And they do have that budget because 25% of their budget should be earmarked for education. And we had students at home, distance learning, but now students are going back to school as well as companies are now having workers going back to the workplace. And we also have a very strong pipeline of FRP, RFPs and bids.

Another great piece of news is that we are now also participating in this new process of electronic ballot boxes, and we are going to start delivering this year and then the other amount by June of next year. And we are the only approved company to also run for providing electronic ballot boxes to 2024. So we are now already working on our request for proposal.

Next slide, please. Now I'm going to focus on our business and our revenue. 50% comes from consumers and 27.9% from government organizations and 15.9% from corporate. That means that we also see an increase in corporate. You can see that all the 3 major areas have grown. So if you compare here for the first 9 months, BRL 2.7 billion against BRL 1.5 billion last year. And we can see that the numbers are very consistent quarter after quarter because of this core business growth avenues and the 3 areas that we operate on, consumer, corporate and public organizations or government organizations.

As for consumer, sales to our end consumers, smart homes and laptops and notebooks, direct sales via our website, we see this growth from BRL 845 million to BRL 1.5 billion. We also see an increase in the number of notebooks sold in retail. And it's also very important to say that in September, we saw a slowdown in the purchase of notebooks, although still above 2019, but not as big as what we had at the beginning of 2021. But we actually expected that. So to happen after we had the activities resuming, so now we don't see that willingness to buy notebook, but it's still above what we had in 2019. And we actually already pictured that. So to have numbers above 2019 and slightly lower than what we had same period last year and the first half of this year.

We signed also partnership with Infinix, and Transsion Holdings is the sixth largest company worldwide where in smartphones, it's a company that's increasing its presence, and we are really betting on this partnership. And we chose Infinix, which is the brand that caters to young tech-savvy individuals. Our smartphones are being sold by -- at BRL 1,469. But with very good settings. I am using an Infinix, and it's really great. I think it's really worth getting to know it.

And we expect to increase our share. And we have a very strong presence of with Positivo with smartphones that cost us at most BRL 1,000, but we are now trying to be present in the different market segments. So this one for premium smartphones, just as we did with laptops. And also our T3 project, which is really to be -- we have all these major retailers. We are working strongly with large retailers. But now we are working with 101 to 3,000. So the T3, so working with smaller retailers. And we also saw an increase by 32% with small retailers.

Smart homes, also 235,000 new users. So now we are totaling 480,000 users of our Smart Home app which is really great. And in the future, that also allows us to see recurrent revenue. Products are being welcomed. They're being bought. We are now holding a large more brand campaign. And 2 days ago, we also had a very important conference and sharing these products with the new line of routers. So we are also increasing our portfolio, not to mention the do-it-yourself, which is also a big seller. But also -- and this has been sold in major companies where these products are offered.

As for corporate, we see an increase by 24% quarter-over-quarter. Notebook sales increased above sales of desktops, has impressive number. It already accounts for 15% of our third quarter's gross revenue, which is great. Recurrent revenue increase and we really enjoy this recurrent revenues. Although, we still have a very important revenue coming from single purchase. And we are also increasing our customer base. As for the payment machine, we have signed a contract now with Stone and we're going to deliver this fourth quarter and also next year. And this is really a very strong pipeline as well.

Next slide. I have already commented about government organizations. I already shared some numbers, BRL 761 million against BRL 342 million last year, and we expect this number to increase next year, achieving and also considering the BRL 1.7 billion revenue coming from contracts that have already been signed or to be signed. And we also have a very robust pipeline.

We calculated and there are an increasing number of our RFPs, accounting for BRL 6 billion. The volume of notebooks delivered has also increased. So once again, the notebooks increased above desktop. So the pandemic also allowed us to have this increase and the strong demand coming from public schools. And the secretariat and department of education had some fund left. And the pandemic really demonstrated how important it is for students to have a notebook, a tablet on their hands so that they can study. And also for HaaS hardware and software, we also have these totals available. It's merely a computer, but with a new presentation. And also the rental and leases of notebooks and tablets to schools, public schools. And we believe we present a unique presence with unique engineering and products that allows us to keep on growing.

Now I'd like to turn it over to Caio, our CFO so that he can go over the financial highlights.

[Caio Moraes, executive]

Thank you very much, Hélio. Good morning, everyone. It's really a great pleasure to be here. Let's start with the gross margin. And as Hélio mentioned, we really have a very, very healthy numbers. Here you can see, 23.9% in the third quarter and the 9 months. So to date, 24.4% because we have a very solid margin and a better product mix and service mix, hardware as a service, and this revenue has increased 83% in year-to-date and also technical services. For this quarter, 288% and year-to-date, 462%. So that certainly has an impact on our margin, as you can see on this slide.

Next, adjusted EBITDA. Obviously, this number also relates to our stroke presence. Another quarter with a good number, certain -- you can see, BRL 253 million year-to-date and BRL 89 million for this quarter. I'd like also to clarify that the drop in the margin in this third quarter against last year's quarter are related to the comparison basis. First, as Helium mentioned, we had last year some revenue coming from taxes such as IPI that has already been converted in cash, and that was recognized in the third quarter last year.

And also, starting June of last year, we also decreased working hours. So that also had impact on our comparison basis. And it's also very important to stress that as for operating expenses, this is really aligned to what we had in 2020. So in 9 months of 2021, we achieved the same level of revenues. So if we consider, for example, the [indiscernible] expenses, we actually had a decrease as well as for operating expenses.

So now moving to our next slide. So our financial results and net income. As for the expenses, as I mentioned, we had really to fund and to borrow for our working capital, not to mention the SELIC rate. And as seen before, we are also generating more cash, and that is certainly proved by the results. So we see leverage, a very healthy leverage. We can see this net debt against EBITDA adjusted 1x against 1.3x in the third quarter of 2020. Not to mention the FX changes that we promoted. We implemented mitigations in order to fight effect volatility. So today, we have a quarter net income of BRL 54 million and year-to-date BRL 161 million.

So now for capital markets, I'd like to highlight once again that the company entered IBrX 100. Now in the third quarter, not to mention the expressive number of stocks that have been negotiated, 483% increase and also an increase in the number of corporate investors. As you can see here, in institutional, rather, 63% increase. And also, the numbers we have here are related to the stock exchange market numbers from yesterday.

Now let's turn it over to Hélio for his final remarks.

[Helium Rotenberg, executive]

For the first time, and considering all the market uncertainties regarding computer market and giving you an outlook for next quarter, we will achieve BRL 1.5 billion to BRL 1.4 billion. This is still -- we are still facing challenges, particularly considering international freight. So we do not know exactly what we will be able to recognize for third quarter. But our outlook for the fourth quarter is revenues of BRL 1.2 billion to BRL 1.4 billion. And with that, the company annual revenue will achieve BRL 4 billion, an amazing growth compared to 2020.

We also see strong demand in all business units. I'd say that not that strong in consumers. And although we do have the Black Friday and Christmas coming up around the corner, and our growth avenues working, all of them taking place, HaaS, T3 and even servers that presented not so strong results, it's important to say that we achieved good results compared to last year. And I'd say that we -- our performance is really good.

I have already mentioned some numbers for next year, considering the electronic ballots 935 that will be delivered. And we have BRL 1.2 billion that has already been signed for next year. So that demonstrates that we are going to see a very robust performance next year. So I believe that everything we plan starting 2017 by diversify our revenue source is now bearing fruit. So not to depend on a single product, on a single segment, consumer or corporate or government, not to depend only on computers and notebook.

So we are now present in different areas. And this change by presenting different laptop brands, also now we have -- we are increasing our smartphone portfolio and also and IT with positive servers and solutions. And when we think about 5G, so we will also see the need of more servers. So our education technology is also being very successful, and it will play a very important role with regard to education software, of the ones we produce and also considering Brazilian and international startups.

Also, we see an increasing smart home app 480,000 already. And also, we have, for example, sales for buyers and sub-buyers and retailers. We also see this contract signed with Stone that is for smart payment machines. So what we see is that technology presence in our society has increased, and it's here to stay. And we have been able to deliver revenue and also profitability in a very healthy performance so that we can keep on growing.

Thank you very much for your attention. Now we open the Q&A session.

[Unknown]

Thank you, Hélio. [Operator Instructions] Our first question, we already have a quite good number of questions, from Marco Nardini from XP Investment.

[Unknown]

I'd like to commend you for your results. And I have 2 questions. First, can you please elaborate on how you see the increase in revenues and the impact on margin in 2022 with Infinix? And the second is about retail. Can you please talk to us about how retail is doing in this first months, and this also considered Black Friday. So what are your expectations with regard to retail?

[Helium Rotenberg, executive]

Thank you very much, Marco. Infinix revenues will be important next year. We are launching one model with 2 memory sizes. But in January and February of next year, we will add 8 new models to be added to that portfolio. And we expect to really present to good revenue. The margin will be the regular margin, what we see in the retail. And we expect to see what we have with regard to smartphones in Brazil, not different from what we have. But the average ticket will be higher, the price is higher. So the average ticket will increase.

As for retail behavior, as I said, at the end of August and September, we started to see a slowdown in computers. It's doing well with the tablets and smartphones, but a slight decrease in computers, but compared to the peak we saw at the beginning of 2021, when people were still working from home, where people were still using these pieces of equipment and still above the numbers we had in 2019. And the same will be seen in October. We are now delivering 4 companies that will carry out Black Friday promotions. And if they sell good, and we expect for that to happen, I do not know if we are going to achieve the same levels of 2020 because of the situation in computers, but we believe that it will still be very important.

[Unknown]

Our second question comes from [ Ricardo Hego ], investor. So while we wait for Mr. Rego, I'm going to move to the third question from [ Luis Leal ] from [ Premium ].

[Unknown Analyst]

My question is about [ Vagy Home ] in the IoT market. And what are your expectations regarding Vagy? And what are you going to do in order to fight this competition?

[Helium Rotenberg, executive]

We will keep on working. We know that there are many companies entering this market segment, including Vagy, which is not their core business. We do not know exactly how they are going to operate. And we are still stepping up our strategy of being the first, particularly with smart home and particularly lighting, we are the leaders in this segment. We carried out a very strong campaign, and perhaps that's why we see this large number of competitors entering this market. We carried out a large advertisement campaign. We are also increasing our portfolio. I believe we are very well-positioned for this category.

[Unknown Analyst]

Okay. What about Intelbras, another large competitor, do you see that as a threat?

[Helium Rotenberg, executive]

Intelbras is certainly leader in security. So our share is smaller for that segment. But as for lighting, we are much bigger. So Intelbras is certainly a competitor, but for do-it-yourself, we are leaders.

[Unknown]

Now turning it over to [ Mr. Ricardo ]. He sent us his question in writing. With Infinix partnership, the power to bargain, will that also affect other products such as tablets, smart homes, notebooks? Can you please comment on that?

[Helium Rotenberg, executive]

Certainly, when you see an increase in volume of product, your bargain power increases. We will buy more processors and that will also position us better with our suppliers. We're very happy with this partnership.

[Unknown]

Thank you, Hélio. Next question from [ Mr. Wagner Silva ], he's an Investor. Please, Mr. Silva, can you open your microphone? Wagner Silva, we kindly ask you to please open unmute yourself. So I will move to the next question. [ Mr. Ehi Ayaks ].

[Unknown Analyst]

Congrats for another great quarter. I would like to ask that you please talk about equity equivalent and also about HiLab? And the second question is to Caio. We see that the cash position decreased slightly this quarter. So taking advantage of the strong results, are you considering another borrowing?

[Helium Rotenberg, executive]

I'll ask Caio -- I'll ask about the most financial aspects, okay?

[Caio Moraes, executive]

Thank you very much for your question. As for equity equivalents, it's true, we saw an increase of positive results against negative last year. And thanks to improving our international operations that are captured using equity equivalents, both in Latin America and Africa, and that's why we see this more favorable results. And this revenue, they are also managed in dollar, and that also helps considering FX.

As for the potential issuing of new debt, well, it's true that the company is generating more cash. You can see our EBITDA over the last 12 months much stronger compared to the same period last year, but cash generation is being also applied in our activities. So we can see the guidance for our fourth quarter, I think, already speaks for that with good results, we are certainly also examining to be more active in capital markets. This is part of our to-do list. Now I'd like to turn it over to Helium.

[Helium Rotenberg, executive]

HiLab is doing well. During the pandemic, we saw good results with the COVID tests. This is a second event in which people had to be tested and HiLab was in charge of doing that. So you draw your blood, and then you have the result in 3 minutes, which is something that is not really possible in rapid test and swab test, not blood test. And what we see is that the technologies are progressing. It's doing well. We expect to know round the C series with them. And today, our stake is 27%. We are very happy with this investment as well as other investments in startups.

[Unknown]

Thank you, Hélio. I will read the question by Mr. Wagner Silva, investor. Two questions. With regard to payment machines, you have Cielo and Stone as your clients. Which are the major competitors? And what is your current market share? And what is your forecast? Second question to HiLab. HiLab celebrated 17 years yesterday. So how do you see the evolvement with regard to its growth and what to expect for the next 2 years?

[Helium Rotenberg, executive]

I think I have already commented on HiLab. We are very happy with that investment, and we believe that it keep on growing and perhaps we will see also C series that will allow us to increase much more. As for the payment machines, 6 million units for next year, we expect to have a important market share. We have many competitors [indiscernible], we have many competitors, both for smart as non-smart. We also have some Chinese companies entering this market. But we also hold a very strong position considering our unique projects allowing buyers to really adapt. And it's our technology so that we can really master android and security layers. So we -- today, our share is not that big, but expect to present a significant share starting next year.

[Unknown]

Now continue. We received a question from [ Mr. Marcos Parneros ] from [ Tagos Investments ].

[Unknown Analyst]

Congratulations for your results, for your performance, for your growth. I'd like to ask about financial expenses. In issuing debentures, was there any swap for a predetermined rate or not? So considering also the adjustments and increase in the SELIC rate over time?

[Caio Moraes, executive]

I will answer your question. Swap was not done. So we worked with CD plus spread. And we also did not work with the prefixed rate. A swap can be done when you are converting the currency, but that was not done.

[Unknown]

Next, question from [ Mr. Fabio Bico ], investor.

[Unknown Analyst]

Congrats on the results. I'm very happy to be part of such a company that's doing everything right. And also, looking at the future, can you please talk about your CapEx for 2022? And what the company -- how does the company see that happening for the next 5, 10 years? I know that that's quite complex and complicated, but if you can please share that.

[Helium Rotenberg, executive]

With regard to CapEx, our CapEx is never high. We actually allocate more for OpEx because we have a high working capital. CapEx, if we need to set up a new line for Board, it accounts for BRL 20 million. It's never BRLs. It's never a significant number. We have not determined next year's numbers. So I cannot provide you any specific number, but not going to be anything that is above. As for 10 years, I'm sorry, I really do not foresee 10 years, but 5 years, yes, very clearly. I see a growth of our avenues that we call growth avenues. So payment machine, HaaS, T3, education technology, smart homes, servers, storages, with an increase in these segments above our core businesses. So it's a matter of reaching balance between these different products.

And we also see, for example, totals we see the electronic ballot boxes. And we believe that the growth avenues will increase slightly above what the increase in core business. So perhaps we'll have the possibility of increase our margin as well. And also to see more of recurrent revenues. So these are the areas that we want to focus on, the areas that we have determined as growth areas or growth avenues, as we call it.

I cannot say that -- well, what we want is to really let them grow at the pace they are growing right now and to reach a balance with the core business, so computers and smartphones, although we really saw that increase of computers in this last month. But we are now adding Infinix and other brands in order to also strengthen our core business. This is our 5-year forecast.

[Unknown]

In the chat, we also received a question by [ Juan Vega ] from Oracle Capital. He's an analyst. Considering the guidance that was presented, how much do the electronic ballot boxes account for? And how often are you going to deliver them? And how many starting when first quarter of 2021?

[Helium Rotenberg, executive]

Well, BRL 905.25 million, 10% will be delivered now in this last quarter of 2021 November, December. So the -- and everything else will be delivered by June of 2022. Then there will be another bid, but we will certainly see also an increase in our revenues coming from that in 2023.

[Unknown]

Perfect. [Operator Instructions] We have a question from [ Wagner ], an investor, and I will read his question. The electronic ballot box is certainly a major technology projects that you achieved. However, once you renew boxes, so what about investments in the Securities Exchange and what about 7.5% of HiLab?

[Helium Rotenberg, executive]

Let's try to answer the first question, perhaps. So for electronic ballot box, that is certain major product. But once we renew all the electronic ballot boxes, what the company has been studying for next years is to also study how the company can keep on growing. We have been participating in many special projects. I showed you the totals that are sold for the state of Sao Paulo government. We also have a project. We do not know if we are going to actually finish that, but it's about payment of buses fees because in Rio de Janeiro that will be done electronically, and we are also studying that for other municipalities, also for lottery houses. So these are just some examples of what we have been doing. But there are many projects. We have an area of special projects, a very competent engineering, and we will examine the opportunities available in the market.

[Unknown]

[Operator Instructions] If there are no further questions, I'd like to thank you all for participating. I'd like to invite you for our Investors Day on November 24. It will be a hybrid event. We'll have the participation of our executives addressing each business unit. And the invitation is already available at our RI website so that you have more information about day, time and site. And we hope you can be with us either in-person or online.

I'd like to turn it over to Caio and Helium for their closing remarks.

[Helium Rotenberg, executive]

Thank you very much, everyone. I believe that the results have been very good. We are very happy, and we are certainly available to answer any questions you may have. Thank you very much.

[Caio Moraes, executive]

Thank you very much. I'd like to echo what Helium just said. We see an increase in every single business areas and we also see also the new RI. We are more proactive, communicating to and with the market. We are now holding our Investors Day on November 24, and we hope that you can join us either in person or online. And this event will certainly allows us to provide more information. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]