Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2022-Q2

[Olavo Vaz, executive]

Good morning, everyone, and welcome to the webcast for the results of the second quarter of 2022 of Valid. I'm Olavo Vaz, Head of Corporate Finance and the moderator of this transmission. Before starting, I would like to make some important disclaimers. This presentation is being recorded and all participants will be in a listen-only mode during the transmission. This webcast has simultaneous interpretation into English and the presentation is available on the webcast platform and the Valid website. Replay of this event will be available shortly after it has been finished. At the end of the presentation, there will be a Q&A session. And questions can be asked anytime during the event and should be sent through the platform web chat that is -- has a blinking light on the left corner of the page.

Any statements that may be made during this conference about the business prospects of the company, operating and financial projections and goals are based on assumptions and beliefs of the Board of Directors as well as an information currently available to the company. Future considerations are not guarantee of performance as they involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions of the industry in addition to other operating factors may affect the business of the company and lead to results that differ materially from those such forward-looking statements.

After this, I now introduce the participants of today's video conference. Ivan Murias, CEO; Renato Tyszler, CFO and IRO; and Ilson Bressan, the ID Officer. Now, I hand the floor over to Ivan, and after that, we have the Q&A session.

[Ivan Luiz dos Santos, executive]

Thank you, Olavo. Good morning, everyone. I would like to thank each one of you for attending this call. I hope you all are feeling well and healthy. In this first part, I would like to go over of the main points of the results of the second quarter of 2022. First, I would like to say that we ended this quarter with exceeding BRL 600 million in revenue, the largest quarter revenue with an 11% growth when compared to the first semester of '21 and BRL 138 million in EBITDA. For this fourth consecutive quarter, this has been the largest quarterly EBITDA of the history of Valid. On point number 2, this has only been possible because the Valid ID has had a growth of 27% and a 200% growth in EBITDA, reaching BRL 47 million with a result of the largest volume of the last 6 months.

In the semester, we have grown revenue by 27% and the EBITDA by 125% in this vertical. In the third box in Valid Pay, although the revenue has not been so strong as compared to previous quarters, especially because of the high in Selic rate and the highest levels of delinquency recorded in the area as well as in retailers. Even so, our revenue grew 7% given the sale of higher value-added cards as well as strong sales in Argentina.

In addition, in the operational front, the company also had a significant reduction in variable costs in Pay business due to initiatives of operational improvement that have been made during this last 18 months, resulting in an EBITDA growth of 244% in the quarter and 142% in the first semester of '22. On the fourth box of Valid Mobile, we had significant results. In the second growth of 2022, we had a growth of 17% in revenues, 12% in EBITDA, reaching an absolute EBITDA of BRL 42 million.

This has only been possible given the improvement in mix of ships and geographic allocation among the countries as well as the constant update in our operating flows. In the semester, although with the volume 17% lower, the vertical grew 19% in revenue and 20% in EBITDA when compared to 2021. On the fifth box and continue with our continuous effort to optimize our business lines, at the end of 2022, we entered into a sales of ID and Pay contract to G&D. The funds will accelerate the process of improving the capital structure of Valid.

This investment is part of the portfolio review that started in 2020, which also includes the closing and sale of Rio de Janeiro and Sao Bernardo do Campo, discontinuation of some business units that had low return. We believe that due to the low synergy with core assets in Brazil and therefore, our low ability to win in the most competitive market worldwide, we would hardly ever -- we have the results that we have in Brazil, and therefore, it would be much better to have those assets in the hands of another strategic operator.

Going to the sixth and last box, as a result and consequence of our operational delivery, the EBITDA in the last 12 months exceeds BRL 440 million. This fact added to that extension process also completed in the second quarter of '22, resulted in a net debt over EBITDA ratio of 1.2x, the lowest level since 2014. The closure of the U.S. operations plus the potential capital increase in the beginning of September with the exercise of subscription warrants issued in January of 2011, can reduce leverage even further in 2022.

Now I will turn the floor over to Renato that will give more details about the results of 2022. At the end, I'll come back with my final remarks and for the Q&A session with all of you. Thank you, Renato, and good morning.

[Renato Tyszler, executive]

Before moving on to the details of the presentations with the next slides, I would like to recap the slide that I have presented before. As I mentioned in the event, until the last quarter, we had our results opened in 4 business units plus the U.S. that's no longer here. In the last year, we were convinced that the business units that we call Digital no longer makes sense. We have 3 core units and Digital will be key for these units to continue to grow both in revenues and margin, each one within its limits.

The VDS unit was very important for the initial start of digital initiatives and for the new businesses of the company. But now we understand that it's time for this core business to leverage the technology within their scopes. Therefore, we extinguished the VDS unit, and it was included within the main core business, Valid ID, Valid Pay and Valid Mobile. We made a detailed analysis that were in VDS to make them part of the other business unit. As you can see on the color side, we can illustrate how this new way of presenting Valid results look. Year-to-date, we have 1/3 of revenue coming from each unit and the EBITDA is distributed 39% ID, 25% Pay and 37% Mobile. So this is how we'll present our earnings from now on.

Now moving on to Slide #5. I would like to divide it in 2 parts. First, the top part that shows the consolidated results, including the United States, just for comparison purposes. See the main highlight points. As commented by Ivan, we had the largest quarterly revenue from Valid and the U.S. remained stable when compared to previous periods showing the strength of ID, Pay and Mobile business units during the quarter. We continued with the development of revenue in the quarter since the first lockdown from the first to second quarter '21. We continued to evolve on a quarterly basis in terms of percentage margins, which shows the results of efficiencies in all the fronts. We closed the second quarter with a margin of 22.9% with United States.

Now let's look at the lower part of the slide, where you can see the individual development of the business units. We compared the second -- this quarter to the second quarter '19. Why 2019? Because '19 was the last of the 3 last years in which there was no effect of the pandemic. Here, we see a significant growth in revenue and EBITDA margin. In ID, we grew 6.7% in revenue and 10 percentage points in EBITDA. In Pay, 76% growth in revenue and almost 17 percentage points in EBITDA. In Mobile, we grew 23% in revenue and almost 10 percentage points in EBITDA. A consistent growth in all business units even when compared to regular business times.

On Slide 6, we have comparison versus '21, year-to-date and for quarter. The results are -- growth results this year are still significant, 15% year-to-date in revenue and 79% year-to-date EBITDA. As shown in the previous slide, all the business unit contributed for such significant growth, especially in EBITDA, in which margins have grown from 13.6% to 22.9% in the quarter and year-to-date from 13% to 20%. We have year-to-date EBITDA of BRL 440 million. It's a new record high of Valid, which contributed to the lowering of our leverage.

On Slide 7, we have the first 6 months of the year results, removing U.S , broken down in the U.S. to show the effect it had on cash. Although the United States accounting for 25% of our revenue, it contributed with only 9% of the EBITDA with BRL 22 million. And when we compare the percentage margin, we went from 20.4% with the United States with the U.S. with 24.2% without the U.S. And this 4 percentage point increase will be reflected from now on.

And finally, as I mentioned in the opening slide, we show here a very well-balanced division among the 3 business units: ID, Pay and Mobile, both in revenue as well as in EBITDA. And this is also very important to bring sustainability for the risk management of the business.

On Slide #8, I show the results per business unit, starting with ValidID. The first good news is that volumes growth are very solid. The first quarter had the best volume in the next 15 semesters -- the 15 quarters, I'm sorry. We -- despite the comparison with the lockdown periods, we still have a margin of 30.2% year-to-date, driven by the solid ID volume in addition to the hub volume we tripled in revenue in the 6 months period. And the certification unit that continues steadily. Continuing with the Pay unit, we had another quarter of growth, growing from 7.9% to 16.8% in 2022 with a 143% growth in EBITDA.

Another factor that has contributed highly to increased margin in this business unit is the card results in Argentina in volume and especially in margin, given better mix of customers and prices. And finally, operational improvements and now paid operations have contributed to increase the margins of the unit consistently quarter-on-quarter.

On Slide 10, I show the Mobile unit that had another solid quarter of results of revenue and EBITDA with a 19% growth in revenue and 20% in EBITDA year-to-date. Although the volume is below '21, given the ship shortage global note, we are improving products in all geographies to bring higher volumes. And we continued with high margins for 8 consecutive margins.

On Slide 11, I would like to divide it in 2 parts to show how clearly it impacts the sales of the U.S. First, we have the normalized net income of discontinued operations. We had a net income of BRL 20 million, driven by the significant increase in EBITDA and partially offset by higher financial expenses, due to the debts rescheduling. The profit that would be considered for the operation in the period will be BRL 20 million, but we had a negative result from the sale of operation in the U.S.

In this case, we had a loss that's only for booking value and onetime only since the assets were priced at acquisition value, we had to -- there is negative result of the sales included here, but the positive effect on cash will only happen when the operation is closed and will happen in the following months. In addition, we'll have a positive effect of free cash flow of the recurring operations of Valid. So the negative booking value on the short term will be exchanged by a positive cash effect when the business continues.

On Slide 12, now talking about consolidated cash flow, we had an operating cash generation of BRL 212 million year-to-date, driven by an increase in EBITDA and partially offset by CapEx and interest expenses. So additional BRL 49 million cash generated in paying interest on equity. We ended the quarter with BRL 515 million in cash with a conservative and solid position.

Slide 13 shows the combination of operating and financial results generated by our initiatives. Starting with the top chart, we closed the quarter with the debt much better distributed throughout the years and more extended reaching up to 2027, not considering the sale of U.S. operations and other liquidity potential effects in coming months. We also completed the 9 debenture issue of BRL 200 million -- BRL 250 million and with a reduction of 6 basis points in spread when compared to the eighth issue. We also renegotiated the other main debts with longer debts maturity periods and lower spreads. And we can see that the result of that is reflected in our leverage that has been going down quarter after quarter now reaching 1.2x the EBITDA.

On Slide 14, the most significant item for the short term is the subscription warrant that is to mature in September 5 and can raise our funds of BRL 110 million. Now the divestment and new opportunities. I'll talk about the U.S.A. part. And then I'll invite Bressan who is the officer in charge of ID Unit to talk about the rest.

Slide 16. The logic of divestment in the U.S. is totally in line with the portfolio review that we started in 2020, and that has also included closing plants in Rio de Janeiro and Sao Bernardo, sales of Montrose unit in the United States and discontinuation of smaller units that had low return rates and little scalability. Both the U.S. and other units were widely disclosed to the market in 2021 and beginning of '22. We left the U.S. because we had little or low ability to win there and given the low market share of Valid, both in ID and Pay.

The ROIC was much lower than our 3 core units. This is much different when this moves on to the global player that's strategic. They will be able to have scale for the business and obtain synergies that Valid was not able to obtain. This is why we believe G&D was the ideal partner for this acquisition.

The Mobile operation in the U.S. remains with Valid within our global platform. And we still have the other business that has divestment potential. And with this, I close my presentation, and I turn the floor over.

[Ilson Bressan, executive]

Okay. Thank you, Renato. Let me talk about Valid ID. I'll start talking about the new ID RG in Brazil, it's time to implement the new RG in Brazil as specified by Decree 10,977. Right now, Valid is developed with 5 states plus the federal districts pilot projects for the development of the new RG. Rio Grande do Sul, [Foreign Language] Minas Gerais, [Foreign Language] and Federal District.

Rio Grande do Sul State was the first one to start the issue of the new RG in July, and the other states will be operational until the end of October of '22. This is a very important phase to test the integrations, stability and scalability of structures that support the project, either in the Ministry of Safety or identification or federal revenue service. This new RG could be identified nationwide, available in paper, security paper or polycarbonate, and valid for 5 or 10 years with interoperable databases and with the final implementation period of beginning of March 2023.

The next slide, I would like to highlight another important initiative of the second quarter 2022 as part of our process to accelerate innovation and transformation of our business verticals, which is to create Valid Ventures. Valid Ventures was created to complement the in-house initiatives to open innovation of start-ups and ecosystem.

We do some things very well in-house and other initiatives, we need to trust on other entrepreneurs. In Valid Ventures, we have govtext to digitize journeys between the government and citizens. This is an environment we know very well. Digital onboarding and antifraud system with customers from public and private customers because we know the process of people identification, and we can guarantee identify -- the integrity of these processes and digital identification to support the other 2 initiatives.

First, we'll offer access to channels and customers. We will provide a mentorship to entrepreneurs to increase the scalability and provide support -- strategic support for them and funding in Series A and B. But this financial funding has a very clear strategic investment strategy. We start as minority shareholders. We provide freedom for the entrepreneur to apply his thesis and provide support for what they need to grow and make the project feasible. And we're pleased to announce the first example of this investment strategy was the acquisition of 10% of Vsoft as we announced on June 30.

Vsoft is ID back headed in João Pessoa in Paraíba that has more than 20 years with platforms for defense and identification structure with strong research initiatives with universities and that complements our product offer to -- for customers of Valid base for identification in the issuance of documents in RG, Digital RG or the conductors at the transit departments.

The acquisition of these interest in Vsoft amplifies the geographic presence of Valid in Brazil, increased the offer of portfolio to existing customers, improves our capacity to provide technology in the entire portfolio. Welcome Vsoft, and I'm sure we can work very well together. These are the initiatives that I would like to share with you. Thank you very much. Ivan, back to you.

[Ivan Luiz dos Santos, executive]

Thank you, Bressan. Before moving on to the Q&A session, I would like to reinforce 2 important messages. First has to do with the deliveries of 2022. We have delivered against the highest quarterly EBITDA in Valid's history. This is the fourth consecutive quarter that we deliver consistent and record results. We have 2 verticals, Valid ID and Valid Pay, they are going very well; and Valid Mobile that is performing exceptionally well.

About VMobile, although we have posted semester results very close to 3 quarters of 2021, it's important to say that we still are worried about the global shortage of semiconductors. Therefore, we do not believe that it will be able to repeat this result in the second half of 2022. However, myself, the entire team will endeavor our best efforts for these results to repeat. But there are so strong indications that we'll have a real shortage of telephone ships in the second half of this year, especially low-end chips in some geographies.

In ID and Pay verticals, we remain confident in the power and sustainability of our results because we have a company that's much more capable of leveraging its results, as a consequence of an effective implementation of management and sales agenda that we have discussed lately. Even with the United States, our EBITDA margin in the quarter has reached 23% and the year-to-date margin has exceeded 20%.

The second point has to do with our capital structure. We are very proud of having worked hard in this last 18 months because in the moment when in the macroeconomic scenario in Brazil has reached the summit of monetary tightening with Selic rates in a record high, we were able to reduce our leverage, restructure our debt. And this context of leverage of the company when compared to the macroeconomic scenario and the base rate -- interest rate of the economy is important to any company, but especially for a small cap company. And that positions us in a unique way, in a very solid way to navigate in this long cycle with Selic at very high rates.

Added to that future events, especially the closing of the sales transaction in the U.S. and the possibility of exercising the subscription warrant, provides a possibility of more expressive reduction in our leverage, contributing to a better scenario, a better possibility to navigate in the economy. In addition, this new level of leverage has never been experienced by this management team since we started to work in the fourth quarter of 2020. As of now, it provides us the possibility of redesigning the future of Valid with organic and inorganic initiatives with the same caution that defines us as a team, but as well as with a lot of power and uncertainty that we are responsible of placing Valid at the place of leadership.

Now I would like to congratulate the entire team of Valid. The result that we have in this call is a result of everyone's effort in the different business units. And my personal thank you and from the entire executive team to each and every one of you.

Now we remain available to answer any questions you may have. Olavo, back to you.

[Olavo Vaz, executive]

Okay. So let's start the Q&A session. I would like to remind you that questions should be sent through the platform chatbox. Give me 30 seconds to organize the questions that have arrived.

First question comes from Fabio. Congratulations on the EBITDA and revenue results. But what were the main reasons for this low -- for the little loss in the second quarter?

[Renato Tyszler, executive]

Well, basically here, this loss is due to the that recorded -- the loss on the sale of the U.S. operation. So the entire operation, excluding the United States was profitable. So we would have a positive result in the quarter, but because we consider the United States, we had a small loss. This is the difference between attaining profit or loss in the second quarter of 2022.

[Olavo Vaz, executive]

Thank you, Renato. The second question comes from Ricardo. Bressan, would you like to answer it? With a high rise in the issuance of documents, Valid still believes that there is a suppressed demand. How do you -- when do you expect it to be normalized?

[Ilson Bressan, executive]

Thank you for the question, Ricardo. Yes, we do believe that there's still suppressed demand, especially in terms of renewal of the driver's license, the CNH. Senatran has established a schedule to renew that only ends in August 2023. And it's postponed schedule for renewal for those who are maturing now or expiring now. So for example, this calendar of the driver's license, it's a bit postponed. And therefore, we have not yet captured all the suppressed demand yet.

But when we look at the results, we do have satisfactory results in CNH, and we'll be able to capture more volume until August next year. We have better results in ID renewals, the RG because at our new states in operation, when comparing '22 to '21, we have implemented BOV Espirito Santo, their additional states and Minas Gerais that is now very close to its full potential of monthly issuance. We are happy with the RG issuance volumes, and we believe that they will also grow, not only because of renewal as of the second half of this year, but much more during next year.

But there are simple effects, a simple reduction in the unemployment rate, if you have to onboard on your new employment, on your new job, you can't find your RG. So we need to issue a new one. And that will help us issue new documents. But we also have other documents that are not driver's license or ID that have an excellent performance in 2022. So these are especially the RNE, which is the ID for foreigners who live in Brazil as well as the console -- professional console revenues, especially the CRM. We more than doubled the volume of such documents issued. There is still market to be captured, and we still have a positive expectation to capture even more and grow more as of 2023. Thank you.

[Olavo Vaz, executive]

Thank you, Bressan. Henato Fabio has a question. What do you expect to happen in the second half of this year and the first quarter '23? Growth of inflation and interest rate can be a source of worry and given the positive results in 2022, will you pay dividends still this year?

[Renato Tyszler, executive]

Okay. Let's divide the question. The first part that is about the expected results for the second half of this year and first quarter of next year. As you know, we do not give guidance in terms of figures. So unfortunately, we cannot say what we project for the second half of this year and for next year. But what I can say is that in this third quarter, the operation continues to run very well, and we expect the third quarter to remain so. In the fourth quarter, there is a seasonality effect, especially in Telecom, it's usually a bit lower. But in -- except for the seasonal effect, we know that our operations are running very well, performing well.

The second part of the question about the growth in inflation and interest rate. This is always a source of concern, especially for a company that has a very high leverage. We have tried to lower our leverage rates so that we can have safer management of our debt and therefore, of the interest paid on debt, considering the high interest rates in force now. We -- in the ninth issuance of the debentures, we are paying more than half of the last one. And with the possible sale of the U.S. and with the capital increase due to the subscription warrants and other lower liquidity events, we'll be able to pay the other half of the eighth issuance and that will give us an even lower leverage rate and we'll be able to reduce the interest expenses. So this is the second part of your question.

The third part has to do with the payment of dividends. Yes, we project to pay and that could be interest on equity or dividends that will depend on how the results are at the end of the year. And as I said in the previous question, when we talk about the impact of the sale of U.S. operations in our figures, it also has an impact for interest on equity. But let's remember that the U.S. when it's booked on results, it's a onetime event. But going forward, it will help us improve our earnings. So we intend to maintain an annual payment of dividends or interest on equity.

[Olavo Vaz, executive]

Renato, Carlos has a question. What has led IR to be so high as a percentage in this quarter?

[Renato Tyszler, executive]

Well, Carlos, again, the fact that we booked the sale of the U.S. in the second quarter has impacted our actual tax rate, the income tax. We record the sale at the booking of the U.S. that results in a credit, these NOL credits are booked. So the U.S. Telco operation will generate profit from now on. You can use the credits that were generated. But here in Brazil, we pay taxes because if you remember, our operations provided very good results. And we pay tax because the Brazilian revenue service is not worried about the deficit generated in the U.S., but they charge based on what we make here in Brazil.

So this -- although we have a consolidated results that has a little loss from the tax point of view, in Brazil, we do have a high effective rate. But if we do not consider the sale of the U.S. operations, we would get back to regular standard here, regular level. So there's no worry from now on in Brazil.

[Olavo Vaz, executive]

Thank you, Renato. How do you see the VHub performance for the rest of the year? Is there -- are there any competitors in that vertical, from Carlos as well?

[Ivan Luiz dos Santos, executive]

Carlos, as we have said for some quarters now, Valid Hub is our solution that orchestrates the digitization in the real estate records, with the Digital Certification and the consequent formalization of all the process at the real estate deed office. As Renato explained, this is part of the ID vertical because it's highly based on issuance of Digital Certificates. The solution has grown approximately 100% in the first half of this year when compared to the previous -- the first semester of the previous year. And especially for main customers with our Itau and Bradesco Bank that account for more than 80% of volume.

As you know, Bradesco and Itau are the largest banks to finance real estate purchases. So we are maturing this business to meet the needs of these customers. We meet less than 10% of their needs in terms of volume. And we intend to mature this track of business to be able to provide more business for them. So just to increase the volume, our performance in Itau and Bradesco will ensure future growth. And along with that maturing process, we can provide business to other banks.

And finally, we do have some competition, but much more based on advanced or qualified signatures and not on digital certificates and solutions are concentrated in Sao Paulo and not nationwide as we provide. And we know that the decision to accept Digital Certificate or qualified signatures based on the official decisions from the registers, we have a more complete solution in terms of guarantees and with the widest geographic coverage.

[Olavo Vaz, executive]

Now continuing to a question from Thales. The level of EBITDA without the U.S. operations at BRL 219 million in the first semester and higher margins of 24%, are these sustainable from now on?

[Ivan Luiz dos Santos, executive]

Well, considering our recurring operations, yes, it is sustainable. Of course, there may be some base points up or down, but it is a sustainable operation. Everything that is in our results, excluding the U.S. that amounts to this 24% has absolutely nothing that has -- everything is a recurring operation. As I mentioned, the fourth quarter, there is a seasonality in Telco. So there's some SG&A costs that are a bit less diluted. So it is sustainable and may vary up or down at some base points, given the seasonality and some customers.

[Olavo Vaz, executive]

Renato, a question from Julio. Congratulations on the results. What is the sale value of the U.S. assets?

[Renato Tyszler, executive]

We have mentioned that we are not disclosing the results of the sales value. We cannot say exactly what it amounts to. When we consider multiples, we're speaking about very interesting multiples when -- in terms of the EBITDA generated by this operation in previous years, but we cannot disclose the figure that we agreed on with the partner. We expect that up until the end of the year, the transaction has been signed and closed without the approval of the U.S. government. And once the deal is closed, then we'll be able to disclose it.

As I have said lately, the bad part that impacts the net income is already accounted for the ID and bank. And the good part that will come as the operation is completed in coming months. And then you'll be able to see the effect of that in the company's cash.

[Olavo Vaz, executive]

Next question made from -- asked by Eduardo. What would be the recurring income or net income from the second half of '22, reducing one-off event of the sale of U.S.? BRL 50 million more, is there still some divestment to be made?

[Renato Tyszler, executive]

Eduardo, it wouldn't necessarily be BRL 50 million plus exactly, but something close to that figure. So you are right and rounding numbers, it is something close to that. About BRL 50 million to BRL 51 million of our results, which would give us a net income in the quarter of BRL 40-some million.

[Olavo Vaz, executive]

Another question is related to the sale of U.S. from Yudi. Considering the cash coming from the sale of U.S. and the explosion of the results of the unit, what would be the company's leverage today?

[Renato Tyszler, executive]

Yudi, if I give you that, you can calculate and you can tell me the sale value. So unfortunately, I cannot give you that number for now. But it will be very helpful in leverage terms. And in the previous question, I forgot to answer whether there are new divestments to be made. As I mentioned in my presentation, there is still the data business in the U.S. that was not included in the results that once the sale agreement is signed, it would have an effect on the third quarter of our net income without any effect on cash, it would be a positive cash effect. Other than that, nothing else on our radar.

[Ivan Luiz dos Santos, executive]

And just to add on what Renato said, when funds come from the U.S. as well as funds coming from capital increase, this will be used to end the eighth issuance of debentures. We have paid almost half of it. So just explaining what the funds would be used for.

[Olavo Vaz, executive]

There's a question from Patrick. Have you received any interest or proposal regarding the assets in Argentina?

[Renato Tyszler, executive]

Hello, Patrick. Yes, we did. People talk to us, but nothing that we found interesting. And the management's decision to continue with the operation has proven right during 2022 because with the exchange rate situation in the U.S., the importing of cards and chips, which is the scenario in which our competitors operated has proven very uncertain and a lot of the local volume was now -- is now operated by Valid.

So both in the global telecom chips as well as bank chips dynamics, it's been very important to have a robust process of allocation of chips for customer and Pay geography. And the company has to have a solid understanding of gross profit unit per product.

So we're looking at banking operations in Brazil as a Mercosul operation. So depending on prices and terms that we have to payment and repatriating the funds from Argentina and Brazil, we're trying to move part of that to Argentina to maximize the return on that asset. So yes, in summary, we did receive some -- we had some conversations, nothing interest and the decision to continue our operations in '22 proved to be a right one.

[Olavo Vaz, executive]

Continuing with Renato, question from Marco. The first quarter, there was losses with receivables. What's the impact on the second quarter? The adjustment of sales assets sold in the U.S. was only a booking adjustment compared to the sales value?

[Renato Tyszler, executive]

Well, the first part of your question, Marco, yes, in the first quarter, these monetary losses of receivables were related to a loan that we have with our subsidiary that was closed in euro at a high level. Since there was a major depreciation of euro when compared to real in this first quarter, we had a booking loss. It's just for accounting purposes. And now in the second quarter, we reverted it partially. So BRL 16 million came positive because Euro appreciated a bit. But it's hard to say what will happen in the future because each month is a different exchange rate. So changes are made accordingly.

As for the second part of your question, the answer is yes. When we book the loss, we follow the accounting rule that you know. We have the value sold, value of assets, but there are several costs related to the operation that are all allotted to the adjusted value. This is what we have booked in our accounting, in our books so far.

[Olavo Vaz, executive]

Another question from Thales. The Pay segment margins presented are sustainable. What is the prospect for Mobile in the -- for the rest of the year given the causticity of chips?

[Ivan Luiz dos Santos, executive]

Thales, in bank cards and Pay vertical, there are 3 factors that influence it. Price, prices of chips and PVC. The mix, the way you orchestrate your production capacity according to different customers and margins and efficiencies. I'd say that in terms of chips, we are more exposed to the variations of international prices. As scarcity is solved, and we don't believe it will be solved in the short term, the price of chips tends to level. And that will affect the price of the end product.

On the mix and solutions and efficiency side, on the other hand, we have very new gains. And as S&OP robust process and partnerships with our customers and existing customers that are -- existing banks that our customers are as well as new banks, we have solid partnerships established with such partners. And that guarantees the [indiscernible] of orders and sustainable margins.

And the reduction of expenses that are -- so the 3 factors, prices of chips can vary as scarcity is solved, mix of the plant efficiencies are per annual effects. And finally, as Renato said in the beginning of the consolidation of digital initiatives in this vertical, it's important to say that we have Payment solutions in Brazil and Payment solutions operated in Colombia. Because they are highly technological solutions, they operated EBITDA margins of 25%, 30%, 40%. And when you consolidate these solutions in -- within Pay vertical as a whole, they contribute to the EBITDA margin in a positive way.

[Olavo Vaz, executive]

Renato, question from Davi. Congratulations on the strong conversion of EBITDA and cash generation for the expansion of ROI. Can this level be considered recurring one? What can we expect from now in terms of CapEx to sustain current options without expecting M&A?

[Renato Tyszler, executive]

The first part of your question, yes, we are speaking of a conversion that we can consider recurring. I imagine you're talking about cash coming from operations. We are speaking of a CapEx that in the first semester was even higher than we would have had proportionally on a monthly basis. Because we implemented IP in first half of the year in some states and once you make it, you just reap the benefits, and there's no major investment to be made.

So there are no major investment to be made in new states in the second half of the year. So yes, we do expect a return on equity that we are advancing. When we look at the ROI, it has increased with a stronger EBITDA margin. The ROI per business unit and ROIC, excluding the U.S. operation.

So as I mentioned in my slide, the U.S. operation in terms of ROIC, lowered the ROIC of the entire company because the EBITDA was low and the investment was high in assets. And when we exclude the U.S. operations, we gained some percentage points of improvement in ROIC. We are seeking a better ROIC and we are now in EBITDA to NOPAT, and we're also working to control CapEx and working capital. And the CapEx for the year, we have said that we expect to be around BRL 100 million for this year without M&A.

[Olavo Vaz, executive]

There are no further questions. So again, I would like to thank you all for attending this call and for the entire IR team. And the entire team of the company and officers are available to answer any further questions you may have through the Investor Relations channel. It's a pleasure to have you all and have a good day.

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