Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Analysis

Valid Achieves Record Quarter with Strong Growth Across Key Segments

In the third quarter of 2024, Valid reported a record net revenue of BRL 580 million and an EBITDA of BRL 132 million, reflecting a 22.8% margin. Key contributors were a 16% year-on-year growth in the ID and digital government vertical and recovery in mobile connectivity. With a significant net profit of BRL 90 million, Valid's total for the year reached BRL 318 million. Digital revenue from new business lines totaled BRL 62 million for the quarter, making up 10% of overall sales. Looking ahead, Valid aims for a stable credit environment amid increasing foreign exchange pressures while planning to pay BRL 43 million in dividends on November 18.

A Strong Third Quarter Performance

Valid delivered an impressive performance in the third quarter of 2024, boasting a net revenue of BRL 580 million and EBITDA of BRL 132 million, representing a solid margin of 22.8%. This quarter was marked as the best for both EBITDA and recurring net profit, which reached BRL 90 million, the highest in the company's history. The growth was significantly driven by the ID and digital government sectors, which saw a remarkable growth of 16% in net revenue year-over-year, alongside a recovery in the mobile secure connectivity division.

Resilience Amid Challenges

While the pay vertical faced a slight decline, generating over BRL 200 million in net revenues, the overall resilience of Valid's traditional business was notable. The mobile solutions segment rebounded strongly from previous quarters, signaling a recovery that will likely benefit future performance. Additionally, there was a strong demand for the new national ID card and eSIM technology, ensuring continued momentum in these areas.

Emerging Revenue Streams

Digital revenue streams, particularly from new business units introduced earlier in 2023, generated BRL 62 million in the third quarter alone, which accounts for 10% of total sales and 16% of global EBITDA. Notably, during the first nine months of 2024, these new businesses contributed BRL 148 million to the company's revenues, highlighting the effectiveness of Valid's strategy to diversify its offerings.

Investor Returns and Cash Position

Valid demonstrated a commitment to shareholder returns, having paid out BRL 87 million in dividends so far this year, with an additional BRL 43 million in interest on capital scheduled for distribution on November 18. The company ended September with cash reserves exceeding BRL 150 million, reflecting a robust liquidity position that affords it flexibility for future growth initiatives.

Future Growth Projections and Strategic Focus

Looking ahead, Valid remains optimistic about its ability to generate new revenue and sustain growth through a balanced strategy of capital allocation. The company acknowledged that the third-quarter results are aligned with its long-term objectives, focusing on consolidating its strengths while also investing in innovation. There are targeted expectations for the continuity of growth from its traditional sectors while enhancing its product offerings in mobile solutions, digital onboarding, and digital government platforms.

CapEx and Operational Efficiency

The reported capital expenditure (CapEx) for the quarter was high at BRL 30 million, attributed to ongoing projects in the ID segment. With a cash conversion rate of 78% of EBITDA, this level of capital investment signifies Valid's commitment to operational efficiency and expansion. The executive team aims to increase investments gradually to facilitate both organic growth and potential mergers and acquisitions (M&A) opportunities.

Market Dynamics and Competitive Position

In Argentina, Valid experienced challenges due to increased dollar costs but still produced solid results. Valid's competitive edge remains strong in this market and is expected to grow, despite macroeconomic uncertainties. The management expressed confidence in both Brazilian and Argentine markets through partnerships and innovations aimed at maximizing revenue from both regions.

Digital Transformation Initiatives

Valid's management highlighted the importance of digital transformation and government efficiency initiatives as potential growth avenues. With governments increasingly recognizing the need for digital services to enhance resource utilization and combat fraud, Valid is positioning itself to capitalize on these trends with advanced technological solutions. The government’s emphasis on digitalizing processes presents further opportunities for Valid to expand its market reach.

Conclusions and Key Takeaways

In conclusion, Valid’s third-quarter results highlight a successful balance between innovation and profitability. With new revenues from digital solutions contributing significantly to the company's growth and a strong financial position that facilitates ongoing shareholder returns, the company is well-placed for continued growth. Investors should keep a close eye on Valid's evolving strategies in mobile solutions, digital government, and potential M&A opportunities that will drive future shareholder value.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Valid's Third Quarter 2024 Earnings Call. I'm Juli Araujo, Corporate Finance and IR Coordinator. Before we start, I'll make announcements.

This event is being recorded and will watch broadcast. For those who are interested, this presentation is also available with simultaneous translation into English. The supporting slides that we'll be presenting are available in our IRR website. And after the replay will be on our website.

As soon as the presentation is over, we'll start the Q&A session. [Operator Instructions]. It's important to clarify that any statements made during this conference regarding the company's business prospects, projections and operation and financial targets are beliefs and assumptions of our Board of Directors as well as information that is available to the company today. Forward-looking statements are not guarantees of performance.

They involve risks, uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions in the industry as well as other operational factors may affect the company's future and lead to results that differ materially from those expressed in such forward-looking statements. Ilson Bressan, Valid's CEO; and Olavo Vaz, our CFO and IR Director, will be with us today. Bressan, the floor is yours.

[Ilson Bressan, executive]

Thank you very much. Good morning, Juli and Olavo, and good morning to all of you who are with us in the third quarter '24 results call. I thank you on behalf of the Executive Board and all Valid's and collaborators. Together, we have built the results we're about to present. I will start by talking about the highlights of the period and our vision of what lies ahead.

Then Olavo will go into detail about the financial data. In the end, we'll have a Q&A session. The first highlight is we had the best quarter of the year, better in revenue, better in EBITDA, in recurring net profit and in revenue generated by new business.

Net revenue was BRL 580 million, and EBITDA of BRL 132 million, a margin of 22.8%. This is due to the excellent performance on the ID and digital government vertical, growing 16% in net revenue year-on-year and also on the recovery achieved by the mobile secure connectivity vertical.

These 2 contributions were enough to offset the weaker results this quarter of the pay vertical, which fell slightly, but nevertheless, represents an important business of over BRL 200 million net revenues in the quarter.

Mobile executed good digital portfolio deliveries and better dynamics in SIM cards helped consolidate results.

In ID, in addition to progress in digital government deliveries, we continue to see high demand for the new national ID card, eSIM in all states we operate. Regarding cards, there was little change in the Brazilian scenario with weak volumes, which should continue given the current interest rate scenario and credit restrictions.

In Argentina, due to the higher dollars, we saw a scenario with costs increased, but we continue to achieve good results in that country. Net profit in the third quarter was BRL 90 million, the best recurring result in the company's history.

This brings the accumulated result of the year to BRL 318 million for the last month and BRL 353 million, a result favored by the sale of Cubic in the first quarter, which without effects represent a profit of the last month of BRL 240 million.

Another extremely important highlight is the performance of digital revenue for news business derived from the portfolio of products and solutions that were not present before 2023.

In the third quarter, we had BRL 62 million and in 9 months of 2024, we totaled BRL 148 million, accounting for 10% of Valid's total sales and 16% of global EBITDA. We made progress in new businesses, BUs digital government, digital onboarding and mobile solutions and remain excited about the potential of these segments.

Regarding the capital structure, operating cash generation stood at BRL 103 million, converting 78% of EBITDA in the period, and we ended September with cash exceeding that by BRL 150 million, reinforcing our commitment to remunerating our shareholders, we have already paid BRL 87 million in dividends this year and recently announced another round of interest on capital JCP of BRL 43 million, which will be paid on November 18.

The third quarter results are absolutely in line with the executive team's guidelines in this management. In our last 2 earnings calls, we showed our objectives for the years, the pillars for executing this strategy, how we are going to allocate capital and what the short and medium, long-term challenges were. Here is a breakdown of each of them on the left side of the slide. On the first point, the third quarter once again demonstrates the resilience of our traditional business.

Overall, net revenue was up 4% in the third quarter '23 and 12% on the second quarter of '24. As a result, accumulated sales for the year reached BRL 58 billion, 2% less than in the 9 first month of '23. Looking at the verticals, Pay remained stable compared to the second quarter.

Mobile grew strongly and recovered from the weaker performance of the first half of '24 and ID continues with a consistent growth performance. Regarding EBITDA, the result this quarter was BRL 132 million, the best quarter of the year, 2% higher than the reported in the second quarter of '24, although 6% lower than the third quarter of '23.

In the year-to-date, we have BRL 378 million in EBITDA, down 10% on the 9 months of '23. On this drop, mobile unit accounts for BRL 31 million, payment for BRL 21 million and ID and government digital added BRL 70 million year-on-year. Regarding Item 2 of the year's objectives, which is the ability to generate new revenue, here comes the best recent news.

The quarter-on-quarter evolution of net revenue generated by new business is consistent and already represents 10% of Valid's total revenue for the year, totaling more than BRL 150 million for the year. Digital onboard and obtained BRL 40 million in the year. Digital solution and secure connectivity already totaled BRL 45 million in digital government already totaled BRL 66 million this year.

The performance of this enables Valid to accelerate investments on the innovation front and digital product portfolio, accessing new markets that connect us with our core competencies of guaranteeing a secure identification platform for transactions in the digital ID and government, payment, banking and secure connectivity ecosystems.

This places in an infinitely larger TAM market. This connects us to the pillars on which we are executing this strategy. As recently announced with the arrival of the new CTO, the priority now is to attract new talent in product and technology areas.

So we can intensify the creation of new products and solutions. At the same time, the executive team's commitment to this double task of innovating on one hand, but guaranteeing earnings on the other is also reflected in results presented this quarter.

The third point related to capital allocation reinforces our philosophy of balancing the present and the future in the present to be a source of funds for our shareholders, but also to be financial capacity and the availability to grow more aggressively inorganically in order to pave the way for our future.

In addition to a net cash position of BRL 150 million, we already announced BRL 130 million in dividends for '24, BRL 87 million of which were already paid out over the course of the year and BRL 43 million will be paid in November 18.

Finally, with regard to short and long-term challenges, we changed the recovery of mobile in this third quarter, which was absolute priority.

With regard to medium and long-term challenges, our focus is on in addition to consolidating deliveries in the 3 fronts of digital onboarding, mobile solutions and digital government, also on complementing the portfolio on the Brazilian secure ID platform for all of its transactions in relation with public and private entities in any ecosystem, especially banking and payments and security connectivity.

And now Olavo will go a little more detail about results. I'll be back for the Q&A session. Olavo, I hand it over to you.

[Olavo Vaz, executive]

Thank you, Bressan, and good morning to everyone who is following us. Since Bressan talked a bit about revenue and EBITDA, let me talk about profit.

In the quarter, we made BRL 90 million in profits, which represents a margin of 16%. Let's go through the bridge between EBITDA to profit. We left EBITDA of BRL 132 million and had BRL 23 million in depreciation and amortization. This figure is in line with what was presented in previous quarters, so much so that in the next slide, we'll see that for the year, we have BRL 70 million accumulated depreciation and amortization. Nothing more than this value of this quarter multiplied by 3.

The financial result for the period was positive in BRL 4 million. This shows an important reduction in expenses compared to financial income when compared to recent quarters. In the second quarter of '24, this figure had been negative in BRL 16 million and less BRL 24 million a year ago.

Taxes in the quarter amounted to BRL 20 million, which represents an effective tax rate of 18%. And finally, we had miscellaneous expenses amounting to BRL 3 million. Then we reached BRL 90 million, the highest recurring quarterly profit in Valid's history, which represents earnings per share of BRL 1.14. Moving to year-to-date view. Valid has gone from EBITDA of BRL 378 million to a profit of BRL 380 million. Depreciation for the year is BRL 70 million. In terms of financial results, we have a negative of BRL 42 million, with a large part of this result having been explained in the first quarter as a result of foreign exchange losses in Argentina and Nigeria.

Tax expenses amounted to BRL 52 million in the year, which represents a tax rate of 14% and other expenses accounts totaled BRL 9 million. This brings us to a recurring net profit of BRL 206 million in the first 9 months of the year. This figure is practically the same as our profit for the whole year of 2023, which was BRL 213 million.

As we mentioned in recent quarters, we had a nonrecurring COVID effect of BRL 112 million in the first quarter, which represents a net accounting effect of the sale at the stake in Cubic plus the write-off of the stake in VCMC, the positive effect of BRL 137 million and the negative effect of BRL 20 million. With all of these movements taken into account, we have accumulated net income of BRL 38 million or nearly BRL 4 per share.

Let me talk about some of our main financial indicators. Considering a 12-month window, Valid has an EBITDA of BRL 525 million and a net profit of BRL 353 million. In terms of ROIC, despite a small drop in relation to the last quarter, we continue to have an indicator above the 20% level. In terms of ROE, we saw a further increase of 20.5%. Now let's take a look at the variations in cash in the quarter and in this year.

This was another quarter marked by significant operating cash generation, which reached BRL 103 million, representing 78% of EBITDA for the period. This quarter, we had the highest volume of CapEx, which reached BRL 30 million. This is due to the implementation of some projects, especially in the ID segment, which we have won over the last few months.

The financial results in cash for the period was BRL 21 million in financial expenses. So on the cash after operations of BRL 773 million, we had the amortization of BRL 3 million in loans and the payment of BRL 35 million in interest on capital JCP.

In the third quarter, there was no asset sales and exchange rate effects had a positive contribution of BRL 8 million. We had a cash plus investment of BRL 743 million. Now the accumulated view, BRL 263 million in operation generation for the year, representing 70% of the EBITDA, even with the negative result of the first quarter.

For CapEx and financial expenses in year-to-date, we have expenses of BRL 61 million and BRL 49 million, respectively. In addition to the identification projects I mentioned in the previous slide, this year, we also have earn-outs due to the Flagstock transaction that took place in '23.

And of Valid's entire investment volume for the year, excluding the earn-out payments, 85% refers to expansion CapEx, which shows the company's low need for maintenance CapEx. Recording cash after operations of BRL 772 million, we made an important reduction in debt.

I would like to highlight the prepayment of operations held by Valid Spain, which had costs well above those that Valid has been working on, on its balance sheet. So far, we have paid out BRL 87 million in dividends, of which BRL 62 million in interest on capital for 2024 and BRL 20 million in extraordinary dividends for 2023 as decided in general meeting.

Also in the first quarter, we sold some assets, Cubic, Set and the property in Sao Bernardo do Campo, which together added BRL 178 million to the company's cash. In this year, we also had exchange rate effects with a positive contribution of BRL 29 million. With all of this, by the end of September, we reached BRL 743 million in cash and cash equivalents.

Now let's take a look at the main accounts that make up our working capital, inventories, accounts payables, accounts receivable.

For both inventories and accounts payable, we saw gains compared to the second quarter of this year. In the year-on-year comparison, we have an increase of 11 days or BRL 49 million in inventories and a reduction of 9 days in accounts payable or BRL 23 million.

In accounts receivable, the account -- there was a worsening in terms of days in the quarterly comparison, which reflected in 40 -- sorry, BRL 54 million, while in the annual comparison, it's stable. This increase in accounts receivable was expected and is due to the recovery of sales in mobile segment, which have a longer average payment period.

We will continue to focus on improving working capital indicators, and we can expect to see improvements by the end of this year. Moving on to liquidity. The work we've been doing on this front over the last few quarters is liability management, focusing on extending durations and reducing costs. In this quarter, we extended 2 operations.

With ABC, we maintained the original rate of CDI plus 1% PA and with CEF, Caixa Economica Federal, we reduced the spread by 25 basis points.

We maintain a solid cash position with cash and cash equivalents exceeding liabilities by BRL 150 million. And today, only 19% of Valid's debt maturing within 12 months. Before going into detail by vertical, I would like to present the performance of our share in the past few months. We had a strong evolution of the share in the last quarter with a growth of 49%.

The same appreciation has taken place over the last 12 months with Valid outperforming the main market indicators. In addition to the share performance, let me highlight the dividends already paid in '24, which totaled BRL 87 million as well as the new round of interest on capital recently announced of another BRL 42 million to be paid on the next November 18. For our buyback program, we have already bought back 5006 shares or 20% of the plan's total.

Finally, in terms of liquidity, the share showed a significant increase of 36% in the quarter compared to the same period in '23, trading at almost BRL 9.4 million a day. This is the highest level in the last 16 quarters. Now let's talk about ID and digital government. This quarter, we reached a milestone of 8.3 million documents issued. This is an all-time record for Valid.

This is due to 3 factors: one, higher demand for SIM, the national ID card in all states where we operate. Second, the start of the ID contract in the state of Bahia by the end of August, as we mentioned in the last call, -- and this is a highly relevant state in terms of volume of documents. And finally, more working days in this quarter.

In addition to progress made on the traditional front, we have seen the share of digital government and onboarding solution grow, which together now account for 17% of ID Verticals revenue for the year and almost 19% of the vertical's EBITDA. In our last call, I also talked about the water control seal unit. Its turnover reached BRL 32 million in the first 9 months of '24, an increase of 46% year-on-year. The water control seal has been mandatory in Minas Gerais since the beginning of September on returnable packaging over 4 liters.

This is excellent new for Valid as many of the state's bottling companies were already Valid's clients. As a result, ID revenue closed the quarter at BRL 225 million, up 16% on the third quarter of '23 in the year totaled BRL 621 million, also an increase of 16% in a comparison in the 9 months.

In terms of EBITDA, we closed the quarter at BRL 72 million, virtually in line with the same quarter last year. In the year, we reached BRL 202 million, a 9% increase. Margin in both the third quarter of '24 and the 9 months accumulated was below the same period last year, closing the quarter at 31.9% margin and the year at 2.5%.

This small reduction in margin is due to the mix of products and services sold in the quarter as well as the ramp-up of some new markets in which costs are accounted for before revenues.

Moving on to the payments vertical. The dynamics of the third quarter was very similar to those of the last 2 quarters. The total volume of issues in Brazil plus Argentina reached BRL 17.7 million in the quarter and revenue reached BRL 201 million.

In terms of EBITDA, we had BRL 27 million against BRL 49 million in the third quarter of 2023. In this segment, we have some pressure on costs due to a higher dollar, which has a particular impact on the unit value of some items that make up the cards. This effect is felt in both Brazil and Argentina.

These pressures led to a margin of 13% in the quarter and a year-to-date margin of 18%, which represents a reduction if compared to the same periods in '23. Looking ahead, we believe that the volume in Brazil will remain stable as recent movements in the Selic interest rate have not strengthened the credit environment.

In Argentina, the local government is continuing its measures to improve the dynamics of payments and foreign exchange flows should lead to greater competition, although it will facilitate relations with suppliers and eliminate any penalties for withdrawing funds from the country.

Now mobile segments. In the period with sales of BRL 150 million in EBITDA of BRL 34 million, a margin of 22%. After a few bad quarters, the mobile segment showed an improvement recovery in the third quarter with important deliveries.

EBITDA of BRL 34 million in the last 3 months is virtually in line with what we have done in the half of this year. The result of this year continues to be pressured by the weaker first half, but we have good expectations for the fourth quarter and the possibility of ending a year with a margin close to 20%.

I would like to point out that the Mobile Solutions business now accounts for around 16% of this vertical revenue, a growth of 87% year-on-year. In terms of EBITDA, these initiatives led to BRL 6 million of positive results for the year, a margin of 19%.

At the same time, in 2023, the EBITDA of these initiatives was negative by BRL 1.3 million. As this new BU gains scale, we can achieve greater contributions to our results, both in the mobile BU and consolidated BU. So this concludes my presentation on results.

Now I ask you to wait for 2 minutes while we get organized for the Q&A session. Please submit your questions through the chat, and we will be right back. See you soon.

[Operator]

We are back for the Q&A session. [Operator Instructions]. Now let's move on to Douglas' question.

[Douglas, analyst]

Hello, -- how is the contract on interoperability in Sierra? Is there any challenge in implementation? What is the expectation regarding the expansion of these services?

[Ilson Bressan, executive]

Thank you, Juli and Douglas for the question. Well, the implementation of our interoperability service in Serra is ongoing. We have 2 instances working with the interoperability movement the database connected to PFOS, the Department of Safety regarded to ID documents.

This is ongoing. So the challenge right now is to coordinate the other instances of the state, other departments such as education planning, department of health, so we can have all the internal elements of these departments ready. So technology and product can start bringing specific advances within the general interoperability in the state of Serra.

This is also connected with the implementation of our service portal, which is the hub where we connect all the redesign of the journeys are being provided to citizens so they have a better experience in the state of Serra has better performance in managing resources.

The pace is a good pace of development.

We have some advancements in this market, in this front. And in the beginning of 2025, we expect it to ramp up.

There's another characteristic of this agreement in Serra, which is in partnership of the the state technology company.

So the state is trying to commercialize this model to other entities outside the state of Serra, which is another opportunity for 2025. We expect this to unfold or to turn into new agreements.

[Operator]

Next question comes from Leticia also to Bressan.

[Leticia, analyst]

I would like to know which are the main opportunities of growth you see for the next period? Are there expectations of expansion to new markets or launch of new products?

[Ilson Bressan, executive]

Thank you for your question. Well, there are some good news of this quarter. Well, outside or not considering revenue, EBITDA and net profit.

One highlight is how new businesses have become relevant in our revenue mix. One of the main expectations for the next year is to continue, on one hand, extracting good results from our traditional business. It has shown to be pretty resilient in all 3 verticals.

We have some oscillation here and there. But maybe one big highlight for next year is to keep on showing the capability of extracting highest possible value from the traditional resilient business and in new business generate value through the expansion of portfolio. So for new business, I see 3 dynamics, a little bit different. On one hand, we have digital onboarding. Today, we have a major client in the public sector.

We want to convert other private clients so we can adapt our products. So we can complement our portfolio solution for digital onboarding, considering what we already do in Caixa Federal, for example, and adapting it to new private clients.

So this is challenges in the market front and in the product front. In mobile, this is a dynamic that the third quarter has shown a lot of our growth potential for this element for this vertical.

So both in terms of platforms, we're still looking for global Tier 1 clients.

We are focused on converting these clients. So we have eSIM management platforms and another front, which is promising is to provide for device producers in our OEM model.

We are well positioned with this portfolio, especially in Asia. And as we deliver these projects and find new people focused on products and support to these new Asian players, we expect to grow more next year.

And e-government or digital government, especially considering the state of Careca, also shows an effort in terms of pipeline conversion and implementing our portfolio.

These are expected to evolve. So we see these 2 focus, very important to convert pipeline on one hand and product management on the other.

And as we advance throughout this year of '24 with a good volume in revenues accounting for almost 10% in this year, we hope this grows even more next year.

[Operator]

Now next question comes from Fabio.

[Fabio, analyst]

Thank you very much for all this result at this moment of Valid's net cash, is the company analyzing any M&A? What is the risk return ratio if in case of any M&A?

[Olavo Vaz, executive]

Fabio, thank you for your question. Well, the strategy of M&A of this company has existed since 2022. Back then, we put together a team here to look out for opportunities.

And since then, we have looked -- we have acquired minorarily resort, and then we integrally acquired Flag stock, and we continue in this journey.

We believe our future growth will be executed internally and based on inorganic partnerships, other partnerships. What changes through quarters is that we have a very good comfortable net revenue and low debt. So we are in a good position to look for bigger tickets.

So 2 years ago, we were pretty focused on organizing our balance sheet, so we couldn't look for other bigger opportunities. But now we can.

And when you mentioned risk and return, we are pretty pragmatic in the sense. We want to look for already tested cases that generate results, good performance and valid can implement them into our portfolio and generate more growth. And as Bressan said, in terms of onboarding, we have done this with Flex.

Today, we are concentrated on one client, and we have tested, we have advanced regarding the possibility of placing these products and services or offering them to other clients, which increase our potential for revenue.

[Fabio, analyst]

So we continue to focus on M&A.

[Olavo Vaz, executive]

Yes, it is part of our routine.

[Operator]

Next questions come from Fabio Reza.

[Fabio Reza, analyst]

Which will be the strategy regarding operations in Argentina?

[Ilson Bressan, executive]

Thank you, Fabio. Well, in Argentina, we have talked about our local leadership position.

So '25 still presents to us opportunities to be a player with local leadership. We can take advantage of this position. We have this relationship with Argentina for a couple of years.

We have this competitive edge there, and we will continue to explore there. Regarding other challenges, has to do with extracting more value from that unit into other countries. We want to expand to other countries surrounding Argentina.

We want to retake clients and find new clients outside Argentina that can help us to have bigger volume, have more competitiveness and manage some oscillations we may face within the specific market, considering the country risk we have discussed in the in the last couple of years.

Well, a positive surprise for this third quarter is that Argentina still delivers very good results. This is an important asset, and we will keep on looking to expand there and also considering efficiency.

[Olavo Vaz, executive]

Just let me add something to what Bressan just said. I believe that through the past quarters and years, we have a concern regarding the macro scenario in Argentina.

And a very positive surprise we have seen there is the improvement. If you consider 2 years ago, we couldn't pay invoices in Argentina properly. And then we had a window of 180 days and then payments for 30, 60, 90 and 100 days.

Today is 130. Well, obviously, you create a better competitive environment there, makes dynamics easier.

We had to make -- in the past, we had to bypass through Brazil, but now we can do it directly. So we can have better working with Argentina. This is a very good news for us.

[Operator]

Next question comes from Henrique to Bressan.

[Henrique, analyst]

Could you talk about the government's intention to accelerate the implementation of the national identity card? And also, could you talk about what this would represent to Valid in numbers versus what we have today?

[Ilson Bressan, executive]

Well, the government has clearly manifested the intention to make more resources available so states can issue the national ID through the new law, the new order 10977.

But we're still working and rolling out the implementation in the states, and we can already see considering the figures of this third quarter compared to last year, we can see a consistent growth in volumes.

This is a curve that is still in acceleration. And maybe we hope to see this for the next 2 or 3 years. We expect that by 2032, the whole Brazilian population will need to reissue their ID cards.

And this year, we are working on reintegration with the Ministry of Justice and the Federal Revenue Service so we can issue the identity cards of the whole population in a faster way.

So the next few years will represent a better growth, more growth in the sense. And there is another aspect of this moment in Brazil of this national ID card. And as we see, the government wants to make available a public data infrastructure.

This may represent another opportunity for us, and we can work to propose solutions, especially connecting the public sphere and the private sphere. -- considering what we have said to position ourselves as ID proof and ID documents management so we can have better safety in our transactions in both the public and private spheres.

So this will mean more opportunities, and we are prepared in terms of products and technologies to take possible new opportunities coming from this idea of expanding SIM, the national ID card.

[Operator]

Next question from Nishiu to Bressan.

[Nishiu, analyst]

How is the company getting ready for the drop in revenues from less renewals due to the pandemics and the expanding of plans from 5 to 10 years?

[Ilson Bressan, executive]

Thank you, Nishiu, for your question. Well, in October '24, in my head, -- this is a concern that I do not have. If you go back to October '21 or 2 years ago, October '22, obviously, I wouldn't be as confident in the future as far as how we would offset the volumes of driving licenses and ID cards regarding the portfolio of products we had back then.

Well, today, I see an ascending a growing curve in the issue of CIN, the ID card. This would be more than enough to offset volumes regarding the driving license card. But we have another front, another business front, which is digital government front.

Within the ID vertical and the onboarding, this will help us to expect to grow in our total revenue. In the past, we were afraid of that, but we now have -- are absolutely confident that the new SIM and new revenues and new portfolio can help us offset this difference.

We have a confidence in the future that we can make this bridge in a seamless way. This is established for us. This is clear to us.

[Operator]

Next question comes from David.

[David, analyst]

Could you talk a little bit about the Rudi's, the new CTO? What capabilities does he bring to the team, the main projects he's leading and what changes in the organizational structure with the new CTO?

[Ilson Bressan, executive]

Well, Rudi's arrival has to do with the need we have detected to try and allocate resources that are specialized to develop a technology platform that can meet the challenges of all of our BUs.

So they have the proper portfolio to work with government ID, banking and secure connectivity. What happened and still happens today is that we have a pretty isolated dynamics for each of these 3 BUs.

And when we look at the fundamentals of technologies, be them architecture models, language or the models of components, oftentimes, we have to replicate the efforts to meet the demands of another portfolio of products or BU.

So Rudi is here for us to meet this concern to have a common technological platform so we can have scale based on new products portfolio that we have. So the future dynamics is, yes, each BU has its -- their own dynamics.

They can take their full potential into account. But the creation of these new elements, the creation of this new components who help us to have -- to use the capabilities of all of the BU.

So we need to structure them so they can be -- they can have scale. So we can increase sales and increase revenues. We want to potentialize our capabilities to generate more revenues. And this goes through this review and new restructuring of technology.

This is the main task Rudi has ahead. And along with this, we are looking for new talents. We have product teams, which is better than before. So throughout '25, we will intensify this work.

[Operator]

Another question by Douglas.

[Douglas, analyst]

Can you talk about your view on the scenario of public budget to be invested in digitalization agendas, the pluriannual plans, for example, do they excite you?

[Ilson Bressan, executive]

I don't know if I can answer this to you with certainty. In due time, we can detail this. But the first thing is that, yes, the government more and more realizes that by digitalizing their processes and services, the government has better efficiency in using resources.

A good part of these resources is drained due to fraud. So having a platform that prevents fraud regarding the benefits the government provides, this will provide very good phenomenal results. On the other hand, Valid is concerned to have a better or faster conversion of sales to take these opportunities.

What happens when you need to negotiate with the public sector is that there is a legal process that takes time. So the cycle of business deals closing is long.

So we're trying to look for mechanisms. We are trying to change our sales channels a bit. We will continue taking place in bids and tenders to defend the agreements we already have.

But as we want to convert new projects as the state of Ceara or the state of the trend, the traffic department in the state of Rio Grande do Sul. We tend to reach more clients. So on one hand, we have partnerships with big tech to implement cloud in our portfolio, so we can sell and be present in the marketplace of the big tech, so we can achieve our reach markets.

And on the other hand, we intensify this partnership we've had in the past few years with technology departments with states such as Ceara, Piaui,Rodest in Sao Paulo or Clear in the case of automation for schools that we had and Proud Pradesh, many cases.

Each state has a different product. different municipalities, different cities have their own technologies, platforms and considering the characteristics of these companies to sell a product according to Law 13,303 help us to achieve that front in a faster way.

So there is a large budget and the perception that the government can be more efficient. And on our side, we need to find a way to reach the government to explore new channels to convert this into better revenues. This gives us growth opportunities in the future.

[Operator]

Another question by Fabio.

[Fabio, analyst]

How is the advancement of eSIM at Pallet?

[Ilson Bressan, executive]

This third quarter shows an excellent result in this front.

We believe -- well, let me repeat what I said. When we look at mobile digital solutions around the world, one of our concern, the focus of Salvador's team is to reach new big clients in the world. So we can provide them with the management platforms or eSIM management platforms. This is good. And on the other hand, we want to explore OEM opportunities.

So we have new manufacturers bringing new devices into the market. When new devices come into the market, -- and when they are ready to have the element of eSIM or integrated SIEM, together with an adoption curve of MNOs that is shorter by the carriers. So we can see this curve, this exponentialization, the scale of eSIM revenue more effective. Today, we see product and portfolio transition.

We are well positioned. We need advancements. We need new investments, so we can have safe connectivity products ready to do that, but we need new Tier 1 clients, more presence in new devices to be launched in the market so we can use eSIM and cross with market adoption curve. We are -- I believe we are adapted to reach this front.

[Olavo Vaz, executive]

Let me just add something to what Bressan said. Well, today, when we see markets that have already adopted eSIM, they are more developed markets with higher priced phones.

But our focus here is to look for cheaper devices, let's say, or medium-priced devices in regions, you have larger populations, more people.

So we look at this perspective of this market for the next few years, maybe we can imagine an increase in market share here because there is this populational component that can be tapped into. And I'm talking about the America, Africa, the Southeast Asia. So it's a very good perspective for eSIM in the next few years.

[Operator]

Another question from Nishiu.

[Nishiu, analyst]

Let me send this to Olavo. Well, the net cash is BRL 150 million, BRL 105 million in dividends, BRL 63 million paid. and we have the capacity of increasing dividends. Could you talk about the intention of increasing payout this year extraordinarily and also the time flow.

[Olavo Vaz, executive]

We have -- we'll pay more dividends, JCP, BRL 40 million next week, November 18. Well, since the beginning of the year, we have said that we will take the best advantage of fiscal incentives through JCP.

We have been calibrating our work by the end of the year to check room. And as we have room, we will make more payments of JCP. This is for certain. When we look historically, since its IPO, Valid has already paid 50% in payout.

This is a historic average. But what will happen is the issue of every meeting in the top management of Valid. This is a concern we have and the shareholders have.

Let me just go back to the previous question, and let me tell you that we want to be well positioned to possible movements in which we need in terms of CapEx. So in this journey of changing products and services and portfolio, we will need to invest a little more of our CapEx, of course.

When you look at Valid today, Valid is a company that allocates around 3% of its revenue in CapEx, very low. This level will certainly increase in the next few years.

This is not the absurd growth, but we will need to invest a little more resources. And we want to be positioned to be able to have M&As to participate in M&As. With a higher cash, we are better positioned to deal with more volatility and increase in dollar.

Today, we have an excess in cash outside Brazil that generates almost like a natural hedge considering the increase in costs we have here. So going back to your question, this topic is discussed in all Board of Directors meeting.

Once again, we will discuss this. And if you have a clear opportunity to invest in CapEx or inorganic growth, we will certainly announce that, announce more dividends to our shareholders. Of course, this is one of the pillars of Valid to remunerate our shareholders in the long term.

[Ilson Bressan, executive]

Just let me complement Olavo. -- and going back to one of our in the first or second call of this year, we want to balance present and future.

We want to be ready to take coherent, synchronized strategic movement to place Valid in another level of growth. This will be very important.

So agreeing with Olavo, this present and future balance is always in our head. It's always considered by the top management. We will follow the guidelines given by the Board of Directors.

But considering that we are already an excellent dividend payer, this idea of balancing present and future, paying shareholders and placing our company prone to have growth in the next few years. This is the balance we want to strike every day.

[Operator]

Well, this was the final question. So we close this Q&A session. I would like to thank Olavo, Bressan and all of you who are here with our earnings call for the third quarter of '24. All IR channels are available for questions and comments. Have a nice day. Thank you very much.