Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Valid's Third Quarter of 2019 Earnings Conference Call. Today with us, we have Mr. Carlos Affonso d'Albuquerque, CEO; and Ms. Rita Carvalho, Chief Financial and Investor Relations Officer.

We would like to inform you that this event is being recorded. [Operator Instructions] We have a simultaneous webcast that may be accessed through Valid's IR website at www.valid.com/en/ir. The slide presentation may be downloaded from this 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 the beliefs and assumptions of Valid'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 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. Hello, everyone. So today, I would like to begin our earnings conference call by stating that after an extremely challenging first half, in third quarter, we presented the highest EBITDA in the company's history when we reached the EBITDA of BRL 97.6 million and a consolidated margin of 17%.

In this regard, as we commented in the second quarter conference call, the sharp decrease in volume of identification cards issued in June was a one-off event, and we have already returned to a more normalized level of 2 million documents issued from us during this third quarter. And thus, we reached a margin of 32%, totally in line with the expected for the division.

In the Payment division, the result clearly aligns from the lower costs and the higher volume in Brazil year-over-year as well as a better sales mix with the sale of dual interface cards in regions where we operate and the excellence in the delivery of 65% of Inep's examinations in the amount of BRL 76 million.

Also, in the third quarter, the result of the Mobile division, which presented better distribution in the sales mix in the first 6 months of the year, came from a sales mix more concentrated in Asia, reaching an EBITDA margin of almost 14%.

It's worth noting that the annual sales trend was already expected. And year-to-date, we recorded a margin of almost 17%, in line with the margin expected for this division.

We are, therefore, very pleased with the performance of the traditional business throughout this third quarter, but the challenge is not over yet. We are working hard to deliver also good results in the fourth quarter.

In addition to maintaining this ability and efficiency of our traditional business, we are aware that the world rushes for digitalization, where the identification of objects and individuals will be 100% digital. And as we talked about during the second quarter earnings call, in the last few years, we have developed platforms to increasingly grow in the digital solutions market.

So among these digital solutions, I would like to highlight the subscription management platform, traceability, intelligent city management and biometric identification, agribusiness and education.

Valid's digital service portfolio clearly already accounts for 10% of the company's consolidated revenue. Consequently, we have great opportunities to leverage these new initiatives that will be increasingly representative within Valid.

Our focus is clear. We have a traditional business in which we will continue to seek efficiency and sales increase and a challenging work within the new growth initiatives. Everyone here is focused on our core business, which is the identification of people, objects and transactions.

So thank you again for your support, and I will now hand the floor over to Rita.

[Rita Carvalho, executive]

Thank you, Affonso. Hello, everyone. Thank you for participating in our earnings conference call.

This quarter, the net income was BRL 31.7 million versus BRL 23.8 million in the same period of last year. With that, we reached BRL 51.7 million in net income in 9 months. The company's cash generation in the third quarter was BRL 86 million versus BRL 39 million in the third quarter last year, totaling operating cash generation of BRL 155 million in 9 months of 2019, which is an increase of 6.2% over the BRL 146 million generated in the same period of 2018, showing a recovery when we compare to the first half of this year, where we have a cash generation lower in BRL 38 million compared to the same period of 2018. And this was due to the working capital increase to face the national exams project and the increasing inventories to produce the dual interface cards, whose results began to be presented in the third quarter this year.

Regarding the CapEx, this quarter, we spent BRL 85.2 million. In 9 months, actually, we spent BRL 85.2 million versus BRL 48.6 million in the same period of 2018, which is in line with our expectations of spending approximately BRL 120 million in CapEx this year.

In 2019, we paid approximately BRL 37.4 million in interest on equity, and we also paid BRL 287.2 million in amortization of our debts plus interest and raised BRL 275 million to refinance the company's debt outside of Brazil. In the second half of the year, we still have the equivalent of $11 million to pay in debt plus the interest without any additional necessity of funding.

The cash position in the end of the third quarter was BRL 342.4 million, and the company's gross debt closed the quarter at BRL 910 million, which is an increase of BRL 45.4 million when we compare to the one reported at the end of the first half of this year, where the main reason was the translation of the debt in foreign currency to real due to the increase in the exchange rates which was BRL 4.16 at the end of the third quarter and BRL 3.83 at the end of the first half of the year.

With that, our net debt to EBITDA remains at the same level of the second quarter. And with the fourth quarter cash generation and the FX rates at the level of BRL 4, the net debt will be reduced by the end of this year.

Thank you very much, and now we are open to receive your questions.

[Operator]

[Operator Instructions] I'll now turn the call over to the company for final considerations. Sirs, please go ahead.

[Carlos d’Albuquerque, executive]

Thank you. So the year hasn't been easy, but we are quite optimistic, yet we are still cautious. As I said at the beginning of the conference call, our focus is clear. We are constantly seeking efficiency and sales increase for our traditional business and working to leverage growth in the new initiatives, all of them focused on our core business, which is the identification of people, objects and transactions. It's not an easy task and it won't be fast either, but we have a very strong team working hard on these 2 thoughts, which makes us more confident in achieving our goals.

So once again, thank you for doing this call and for your support. Bye. Thank you.

[Operator]

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