Positivo Tecnologia SA

BOVESPA:POSI3

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to Positivo Tecnologia's 4Q '19 Earnings Conference Call. Today, we have with us Paulo Junqueira, Vice President of Finance and Investor Relations. [Operator Instructions] We have simultaneous webcast that may be accessed through the company's website, ir.positivotecnologia.com.br and MZiQ Platform. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Positivo Tecnologia's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Positivo Tecnologia and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the call over to Mr. Paulo Junqueira, Positivo Tecnologia's Financial and Investor Relations Officer. Mr. Junqueira, you may begin the conference.

[Paulo Junqueira De, executive]

Thank you. Good morning. We are very happy to report net income of BRL 20.8 million in 2019 and a BRL 5.3 million net income in the quarter and adjusted EBITDA of BRL 144 million in the year and of BRL 36 million in the quarter; and also a growth on the EBITDA margin of 1.5 points, reaching 7.5% of EBITDA margin.

Our initiatives that started 2 years ago to transform the company's future are starting to show results. Our HaaS Positivo As a Service unit that rents computers recorded a growth of nearly 100% in 2019. Our unit of Servers, Accept, that we acquired in late 2019 reached a revenue of BRL 221 million, a growth of 36% compared to 2018. Our Educational Technology business has growth in gross revenue 35%, reaching nearly BRL 50 million. And also, we have launched our IoT solution, Positivo Casa Inteligente, very successfully in last year, and market demand and response has been very, very good so far.

Also, we believe that the market will grow in our core business due to a pent-up demand that is very clear to us, and we will demonstrate that in the upcoming slides. Market of computers grew 9% -- 9.1% in the fourth quarter and 2.8% in the year comparing to last year. And the mobile phones grew 18% in the last quarter and 8.3% in the year. Also, late this year, on January, we have successfully completed our follow-on operation, funding BRL 353 million, and the proceed will be used to finance the company's growth both in public institutions segment, which we have already good contracts to perform; and also to support the organic and inorganic growth of our growth drivers, including the ones that I have just mentioned, Positivo As a Service, Servers, Educational Technology and IoT.

Moving to the next slide. PCs market, as I mentioned, grew 2.8% in 2019 and 9.1% in the fourth quarter, reaching 5.8 million units in 2019. The decrease in our market share is due to strong -- to our strong financial discipline with the policy of minimum margins and conservative inventory planning, which led to an improving sales margins in 2019. And looking back to our market share, it's not far from our -- from a range that we consider normal. Also, we are optimistic to us -- towards the future, already capturing consistent contracts in public institution in the last quarter of 2019. And also and finally here, we have maintained our dominant position on PCs under BRL 1,200 with an 89% market share.

Moving to the next slide. This slide demonstrates what happened to the PC market in Brazil throughout the years. Brazilian PC market has a strong correlation with GDP. If you look at the figures, in 2011 and 2016, the market have plummeted 72% with -- from 15.9 million units in 2011 to 4.5 million units in 2016. As the economy recovers, the sales of PCs has been recovering so far. On the work scenario, the sales of PCs has been stable ever since 2016 in 260 million units and has grown a little last year. Public institution and corporate markets have already started to pick up demand as we have predicted, with a strong 4Q and with good perspectives for 2020.

Moving to the next slide. The cell phone market grew 8.3% in 2019 and 18.6% in the fourth quarter. We have maintained -- we have our market share of 3.1% in the fourth quarter of 2019.

Moving to the next slide. This is the future of Positivo. This is something that we are investing ever since 2 years ago. And as I mentioned, they started -- the results have started to show, Positivo As a Service, IoT, our Positivo Casa Inteligente line, Servers and Educational Technology.

Moving to the next slide. Positivo As a Service, which is a business of computer and service providing to corporate customers, provided us higher margins and additional revenues with service and softwares. It has -- its revenues grew 93% in 2019, reaching BRL 33 million. It has a very good synergy with our corporate sales channel.

Moving to the next slide. Our Server business unit, which is performed by a company that was acquired in December 2018, Accept, already integrated to Positivo. We spent the year integrating this unit, capturing scale games with -- and synergies with this company, and it grew 36.5% this year, reaching BRL 221 million with very important customers and partners and has also posted a very, very strong last quarter as it did in the previous year. So quarter grew 7.5%.

Moving to the next slide. Our Educational Technology business posted net revenue of BRL 40.9 million, gross revenue of BRL 47 million as I demonstrated in the highlights with a growth of 30% in net revenue, very significant. We have launched a few products such as Schood with very good perspectives for the upcoming years.

Moving to financial highlights. Volumes, in thousands of units we have -- due to our minimum margin policy, we have presenting decrease in the retail in volumes in public institutions also in the quarter. Despite the decrease, we have grew in -- we have growing revenue. On cell phone sale we had on the quarter, a larger -- a growth of 15.7% in feature phones and a growth year-on-year of 10% on smartphones and 2.1% on feature phones.

Moving to the next slide. As I mentioned, the net revenues of public institutions channel grew 3.3%, and our total net revenue was higher of -- on 1.3% than in 2018, reaching BRL 1.915 billion. And our sales margin also reached 11.2%, 2.5 basis points higher than the previous year.

Moving to Slide #13. I highlight here the performance of the -- our Servers business unit that contributed to the share. It's demonstrated under orders. As of the following earning calls, we will demonstrate that separately since we will have a comparison base on a quarter basis. On average price, it has grow due to -- it has grew due to basically a higher proportion of sales to public biddings in desktops and also higher sales volume of intermediate configuration of devices on notebooks. On cell phones, the drop is mainly due to a larger participation of feature phones which has a lower price point.

Moving to the next slide. Our adjusted gross margin year-over-year reached 24.9%, a growth of 1.8 points. That's basically due to our policy of minimum margins and also the contribution of our growth avenues business, more specifically and especially our Servers business unit. And G&A also captured -- the growth in G&A also captured part of this integration.

Moving to the next slide. We reached net income of BRL 5.3 million, as I mentioned, an EBITDA margin of 7.5%, an EBITDA of BRL 144 million and net income of BRL 20.8 million. Our net debt was of BRL 271 million with a 1.9 net debt/EBITDA index.

That will be all. Thank you.

[Operator]

Ladies and gentlemen, at this time, we'll go to the question-and-answer session. Actually, we will end today's conference call. We do thank you for joining today's conference. You may now disconnect your line.