Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome everyone to Valid's First Quarter 2020 Earnings Conference Call.

Today, we have with us Mr. Carlos Affonso d’Albuquerque, the company's CEO; and Mrs. Rita Carvalho, the Chief Financial and Investor Relations Officer. We would like to inform you that this event is being recorded. [Operator Instructions]

We have simultaneous webcast that may be accessed through Valid's IR website at www.valid.com/ri. The slide presentation can be downloaded from this website. There will be a replay facility for this call on the website.

Before proceeding, we would like to mention that forward-looking statements made during this conference call referring to business outlook and financial goals are based on the beliefs and assumptions of Valid management as well as on information currently available to the company. They involve risks, uncertainties and assumptions as 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 Valid and lead to results that differ materially from those expressed in these statements.

I would now like to turn the conference over to Mr. Carlos Affonso d’Albuquerque, the company's CEO. You may proceed, sir.

[Carlos d’Albuquerque, executive]

Thank you, and a good day, and thank you for participating with us in the earnings results conference call for the first quarter of 2020 for Valid. I hope that you are all well.

We ended the first quarter of the year with a very, but very challenging month of March. Since the 18th of March, it became necessary to adopt several extraordinary measures, and I would like to underscore the main measures. First of all, a postponement until December of the second installment of payment on interest on equity that was foreseen to be paid on April 3, '20. My salary as well as the salary of Executive Directors and Superintendents was reduced for a period of 90 days. The reduction was between 32% and 25%. We also reduced the Board of Management's compensation by 25% for a 90-day period. We suspended the working contract for approximately 2,500 employees for a period of 60 days using the Provisional Measure 936. We also granted early vacations for approximately 3,000 employees in Brazil. And all of this because we closed all of the sites that issue driver's licenses and identification cards in Brazil as well as in the U.S.A.

Fortunately, we did not suffer with the closing of our own plants, neither here nor in Argentina nor in the United States. With this, we're able to maintain our production despite a drop in volumes. On the other hand, as was mentioned in the fourth quarter '19, the plants of third parties that we use to service the mobile divisions in Europe and Asia remained closed since mid-January until the beginning of March.

Now despite all of these exceptional measures, we were able to end the first quarter of the year with an EBITDA of BRL 60 million. With all of these impacts caused by COVID-19, we are accelerating even more the development of our platforms, our digital platforms. Thus, we were able to make strides in the development of these platforms to offer secure identification services for Valid, which we already have, but also in the digital way. As was mentioned in the earnings results call of the fourth quarter, we concluded and delivered the direct trade platform to market agribusiness production, where we will have the transaction of our first slots of coffee harvest for 2020. We also had, at the beginning of the month of May, the operation of the electronic watermark for the State of Goiás. And we're going to continue on with the State of Mato Grosso as had been foreseen. Simply to give you an order of magnitude, this line of business was responsible for a turnover of approximately BRL 17 million in 2019. And despite the crisis, we still have a very good expectation for growth in the year 2020.

Now beyond these 2 important platforms that we have launched and that are in operation, I would also like to underscore others that have advanced significantly. The first, the migration of the printing of invoices as a digital invoice. Now, this transformation and this change is already in operation. New opportunities as part of our digital certification business through solutions of a digital signature and the validation of identity, thus guaranteeing greater security for online transactions, e-commerce, which, of course, is essential in digital environments. We are at the conclusion of development, and we're going to launch very soon our platform that is called VIDaaS, which is the Valid Identity as a Service, an identification platform to ease the life of citizens as each person [Technical Difficulty]

[Operator]

We cannot hear you, Mr. d’Albuquerque. I'm sorry. It seems your line has dropped. We cannot hear you. Okay. If you could please return to the conference.

[Carlos d’Albuquerque, executive]

Well, I'll go back and begin again, therefore, as we had a problem with the audio, but I was speaking of the secure platforms that we will also be launching this year and many of which are under operation. First of all, the migration of printed invoices to digital invoices. And we do not require the printing of invoices, and we have already migrated a large part of these invoices to the digital system. And another opportunity as part of our business of digital certification, we have brought solutions of digital signature and the validation of identity, guaranteeing greater security in the online transactions. And this, of course, is an essential component of a digital environment.

We also have a new platform that we have called VIDaaS, Valid Identity as a Service, a secure identification platform to ease the life of citizens. Let us recall that the identity belongs to the citizen himself. And thus, he can use it with full mobility on mobile phones, on desktops or laptops in a very friendly and secure manner. We are very close to launching this platform. And this will be done very soon so that the use can be adopted to guarantee the integrity of a signature in medical records, for example, in teleconsultations. All of this, of course, allied to the Digital Certification solutions.

Additionally, we're extremely confident with the strategy of entering the instant payment ecosystem through the acquisition of BluPay, which we announced in December of 2019. And it's important to highlight that all of these attempts to using digital platforms are not isolated. There is a convergence among them. And this is the trend for the development of Valid besides secure identification.

I would also like to underscore what we announced this quarter, the acquisition of a controlling stake of Estacionamento Digital. The company is accredited to render services in the management of public parking spaces and already works in 24 Brazilian cities. This acquisition expands our portfolio of solutions for the management of Smart Cities that already has a single offer for the intensive use of intelligent technology, offering a variety of benefits for the municipalities as well as for the citizens. This is very important to offer ease to the citizens. Now these benefits will be attained when we are able to systematize the entire physical structure of the city, identifying, with security, each citizen and integrating public systems where citizens and public assets relate with the government. We believe that with this acquisition, we are reinforcing our presence in Brazilian municipalities. And this began with our project in São Caetano do Sul. We have now added to the portfolio an additional tool to help the city halls in the management of their municipalities. And this will enable us to contribute to a better planning of infrastructure and urban mobility, also offering functions to drivers through an app that locates and pays for parking spaces. You can see that Estacionamento Digital is a very significant tool and is able to converge with all the other tools developed by Valid.

Well, the year 2020 has proven not to be a simple year as we have all experienced. We were impacted with an outside factor of global dimensions. Nevertheless, we have taken up an even faster pace in the development of platforms that are supporting our strategy of transformation vis-à-vis the digital challenges. We also continue in our relentless quest for efficiency and cost reduction. Once again, I would like to thank you for the confidence in our executives and in our team of associates that continue to be very engaged with the evolution and delivery of the Valid objectives.

I would now like to give the floor to Rita.

[Rita Carvalho, executive]

Thank you, Affonso. A good morning to all of you, and thank you for joining us in one more earnings release conference call.

This quarter, the first quarter of 2020, we had a net profit of BRL 2.1 million. Now this result was 84.7% below the net profit presented in the first quarter of 2019. And this is due mainly to an increase in the financial expenses line item of approximately BRL 15.6 million. And the main reasons for this increase refer to an exchange variation of assets and liabilities of our subsidiaries abroad, referring to intercompany operations. And also we had the impact of Valid Indonesia, referring to the exchange variation in the cash and recoverable taxes line items. Now this exchange variation in the quarter results has not impacted our cash. And as we have an appreciation of these currencies in the coming months, it is possible that we will revert part of this negative result.

Regarding the CapEx, we have been even more judicious in the analysis of our investments. And this quarter, we spent BRL 19.7 million vis-à-vis approximately BRL 19.8 million in the first quarter 2019. Now this expense was due to some projects whose contracts had already been closed or renewed with clients at the end of 2019, and they involved investments to set up the operations. For example, we have the contract for the issuance of identity cards in São Paulo, the renewal of the driver's license in Minas Gerais, the watermark in Goiás, the operation began in March. And this, among others, besides expenses such as the development of new platforms that Affonso has already mentioned.

When it comes to the operational cash generation in the first quarter, it was BRL 38.7 million vis-à-vis BRL 43.4 million in the first quarter 2019. Now this quarter, we paid the first installment of the shareholders' capital amounting to BRL 22.2 million. We also used BRL 3.6 million for the buyback of shares in the company, and we paid approximately BRL 19 million in leases, loans and interest rates. Our cash for the first quarter closed at approximately BRL 334 million.

Now due to the evolution of the COVID-19 pandemic, after the close of the quarter, we concluded some operations to reinforce our cash in the gross amount of BRL 217.6 million, increasing our liquidity in Brazil. At present, our total cash is somewhat above BRL 500 million, a rather comfortable outlook. We also throughout this last month -- or the last 2 months have rolled over our debt that stands for $38.5 million for the other companies abroad and the maturities happened during 2020. Once again, we have already refinanced the installment for 2020. Additionally, we are concluding negotiation to roll 90 million of our debenture with maturity this year. And we should conclude this operation in the coming days. Thank you very much, and we would now like to offer you the floor for questions and answers, and I hope that you can all be well.

[Operator]

[Operator Instructions] We have a question from Mr. Eduardo Nishio from Plural Bank.

[Eduardo Nishio, analyst]

And I have a question. I would like to know about your cash consumption in this new economy and what has been happening during these difficult periods. And once again, the issue of the margins, if the measures that you adopted just recently, the negotiations, the cuts in salary, all of the measures adopted, if they have been sufficient to maintain you on a positive scale. And if you believe the margins will go back to some normal position already in the third quarter, if you have any idea regarding this that you could share with us.

[Carlos d’Albuquerque, executive]

Nishio, I did not hear your question fully. But I will, first of all, respond about the part of margins, and then I will speak about the cash consumption and give the floor to Rita.

Well, regarding the margin, everything will depend on our invoicing. Without invoicing, there is no margin. And in this second quarter, where -- we have closed our document issuance plans. But we need to separate that into 2 different periods. In May, we have already observed an increase in some states in the issuance of identity cards. So we're faced with 2 situations. As we have this resumption, we cannot say that everything has gone back to normal and that our volumes are back to normal. We're making the most of the moment and making the necessary adjustments. So this explains the variable.

Now when everything returns, we will be dependent on this. Now for the time being, we see that the issuance of identification cards in sites that have come back such as Goiás, Paraná, still needs to work more securely in terms of how it schedules its appointments for the identification.

Now once the sites are open, the demand will return, and this is what will happen going forward. Once we have a resumption, we think that the margins will be maintained. Everything will depend on the volumes, of course, and this will not happen overnight. I do believe that margins will resume once everything has become more normal. And as I mentioned, we're making several adjustments in our structure for this. I hope that this has answered your question.

[Eduardo Nishio, analyst]

Forgive me. When we speak about margins, if you could also refer to margins in the mobile divisions and the credit cards. Apparently, the production continues to be strong. And in terms of the mobile divisions, I think that, potentially, you will have more work during the second quarter. I don't know what will happen with the mobile divisions going forward. And to go back to the ID cards now a days, which is the percentage of your production that has already resumed in Paraná and Goiás and the other states?

[Carlos d’Albuquerque, executive]

Well, basically, it's in Paraná and Goiás. When it comes to the mobile division, we did suffer the first quarter with the mobile division, of course, but we do observe demand even in Brazil, in the United States and in Asia. When we spoke about the fourth quarter in March, it had resumed. Well, the problem with the mobile division is transportation, freight that has become much more expensive. So we're carefully selecting the orders that we service. It is important to show that we have a good diversity, so that we can balance out what we're doing. And to also have geographic diversity because this has an impact on our invoicing in foreign currency, and the behavior has changed.

We suffered a great deal in the first quarter in Asia. We're now suffering in other places, but Asia has recovered. And the United States, when you look at the results, they suffered a great deal in terms of the ID cards. And because they work with the retail market. But we have telecom, we have IDs, and this great diversity is very important. And if you include the geographic diversity, that gives us that ability to balance things out and few companies have that.

I'm going to give the floor to Rita to speak about our cash consumption.

[Rita Carvalho, executive]

If we look at the second quarter, do you think that the production pace will continue? Or will there be a slowdown. Are you referring to credit cards? I'm sorry?

[Eduardo Nishio, analyst]

Yes. Payment cards up to present.

[Rita Carvalho, executive]

Nishio, we haven't seen any stop or slowdown. Of course, the volumes are not enormous. But we haven't felt any stoppage. We continue to operate our plants. And we see that things are progressing. They're moving. But not the way that we had estimated, but this is part of what is happening.

And to make the most of your question, that is why we're accelerating our digital platforms. We're making the most of this moment to accelerate what was already underway. And very soon, there will be some novelties. But this has to be the dynamic. We are -- have to change our traditional market for some novelties that we have there and that are the core for the company.

[Operator]

[Operator Instructions]

[Rita Carvalho, executive]

Are you still there, Nishio? This is Rita.

[Operator]

Our next question is from Eduardo Nishio from Banco Plural.

[Eduardo Nishio, analyst]

I'm sorry, I had asked about the cash consumption. And I see that you consume every month during this pandemic.

[Rita Carvalho, executive]

Okay, we don't hear you very well, Eduardo, but your question refers to cash consumption since the beginning of the pandemic. At the beginning of the pandemic, we made an estimate of cash consumption month after month of approximately BRL 20 million. This was our expectation, mainly because of a possible reduction in our accounts receivable. Nevertheless, this did not materialize. The combination of the postponement of taxes and payments and the work, the labor, all of this, along with the flow of trade receivables, normal flow of trade receivables, we were able to maintain a very good volume. So this cash consumption truly has not materialized.

And for the time being, we have not had any cash consumption in Brazil. And in the worst scenario, at present, it would represent BRL 20 million a month if we were to have a reduction in our trade receivables.

[Eduardo Nishio, analyst]

Very good. So this provision, this cash provision will be returned. So this additional cash, therefore, will be returned?

[Carlos d’Albuquerque, executive]

Yes. Yes, that is the expectation.

[Operator]

[Operator Instructions] As we have no further questions, we will return the floor to the company for their closing remarks.

[Carlos d’Albuquerque, executive]

To conclude, I would like to underscore how resilient this company is, first of all, because we have several flexible lines. We have been strongly impacted because of the closing down of the sites that issue documents, but despite all of this, we have been able to balance out not only our results, but more especially our cash position.

Now beyond the business diversification, we also have that geographical diversification that has proven to be very strong during this crisis. It generates a great deal of value and the makeup of our results for the first quarter, you will see that it was 50%, 50% in terms of invoicing. And in the second quarter, we will see a larger stake from abroad in our results.

Once again, I would like to thank all of you for your support. At Valid, we're convinced that we will come out of this difficult situation ever stronger. I hope that you are all well. Thank you again, and we hope to see you again.

[Operator]

The Valid conference call ends here. We would like to thank all of you for your participation. Have a good day.

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