Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Valid's Third Quarter of 2018 Earnings Conference Call. Today, with us, we have Mr. Carlos Affonso d'Albuquerque, CEO; and Mrs. Rita Carvalho, 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/en/ir. The slide presentation may be downloaded from the website. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website.

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 beliefs and assumptions of Valid 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 Valid and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Carlos Affonso d'Albuquerque, CEO for Valid. Mr. d'Albuquerque, you may begin your conference.

[Carlos d’Albuquerque, executive]

Thank you, and hello, everyone, and thank you for attending, once again, to this conference call to disclose Valid's earnings.

In line with recovery trend of expansion recorded in the last 5 quarters, the EBITDA in the third quarter totaled BRL 91 million, if we exclude the impact of the allowance for doubtful debts recognized in the Mobile division in the amount of BRL 10 million. So this is the highest results for Valid history. We know that such results was solely reached due to the stability of all geographic areas where we operate, aligned with the endless search for efficiency. These factors allow us to maintain our process of adjustment to change as we have been doing over 6 years, listening to and understanding our customers' needs and seeking for those solutions that best meet their needs. So currently, our customers are facing a digital transformation. And based on the technologies we have developed over the years, we are able to identify new avenues for Valid's expansion.

In this quarter, I would like to share a little bit more with you about what we have already developed within these new avenues. So in the IoT business models, we are operating as a connectivity provider to the new models that require mobile connectivity, such as, for example, our service for connected cars in China. This service place us as a relevant player in the end-to-end markets with significant sales potential to other markets in addition to the automotive market. In the tracking object models, we have already implemented the Valid tracking model and we have also announced our entry in the agri business industry, which is facing a large digital transformation with relevant expansion potential in the new -- in the next years. And the third avenue that I would like to mention is the business models based on the biometric that is becoming even more important in the world for Valid, our family of biometric solutions that we call, Valid Bio. We continue as part of this strategy of safe identification and authentication service in digital transformation faced by our customers. We are also experiencing the increasing use of technology to improve the urban infrastructure. And based on this, we developed and we are expanding our portfolio to this market, which open another important avenue for Valid expansion. I believe that we must point out that these avenues will not change our results in short term. But we are pretty sure that they will be very relevant in the medium term, ensuring new cycles of relationship with our customers. So I would like to thank you.

And now I give the floor out to Rita, our CFO.

[Rita Carvalho, executive]

Thanks, Affonso. Hello, everyone. Thank you all for joining us today in our third quarter conference call. I have some comments about the results. The first one refers to the net profit, which totaled BRL 23.8 million this quarter, an increase of almost 51% when we compare to the third quarter 2017. Similar to what happened in the EBITDA, the net profit this quarter was also negatively impacted by the recognition of the provision for bad debts in the Mobile division of approximately BRL 10 million, as Affonso just mentioned, which was equivalent to $2.5 million. This was mainly due to the difficulty faced by one of our customers in the remittances of foreign currency. I would like to say that our team continues to work in this regard to receive such amount. But since we are not able to estimate how long this process will take, we did such provision during the quarter.

In the accumulated for the year, the net profits totaled BRL 57 million compared to BRL 26.6 million in the same period of 2017, representing an increase of 114% between the periods. Another comment on the net profit refers to the effective income tax rate, which was almost 32% in this quarter and 35% in the accumulated for the year, there when we compare to the rate of 38% presented during the first half of 2018.

As I have mentioned during the second quarter conference call results, as we distribute, we will distribute the profit as interest on equity during the second semester. We estimate to close the year at an effective income tax rate of approximately 30%. The cash generation -- operational cash generation in 9 months of 2018 totaled BRL 146 million against a cash consumption of approximately BRL 6 million in the same period of 2017. Over the year, we raised BRL 360 million in debentures. We paid BRL 420 million in that close interest related to the debentures we had in Brazil and also the bank loans of our foreign subsidiaries.

In 9 months this year, the CapEx totaled almost BRL 49 million, and we also paid BRL 11 million in dividend. We ended the quarter with a cash position of BRL 348 million and with a net debt of 1.7x the accumulated EBITDA of the last 12 months. This was slightly lower compared to the net debt of 1.8x we presented in the second quarter and aligned with the net debt recorded in the first quarter 2018. When we consider the current FX rate, the company's net debt would have reached approximately 1.6x, which is closer to what we are expecting for the end of 2018.

Finally, I would like to say that we maintain our commitment to distribute 50% of our net income. And based on the results of 2018, this should be mostly distributed as interest on equity such as the payment we just made in October of BRL 16.6 million. Thank you all.

And now we are open to take your questions.

[Operator]

[Operator Instructions] At this time, I'm seeing no questions. I'll turn it back over to the company for final considerations. Sir, go ahead.

[Carlos d’Albuquerque, executive]

Okay. Thank you. And we'd like to thank you again. And I would like to thank Valid staff for making the transformation of new cycles really, really a reality. So thank you very much.

[Operator]

Thank you. This concludes today's Valid's earnings conference call. You may disconnect your lines at this time.