Movida Participações S A : 4Q23 Conference Call Transcription

4Q23 RESULTS CONFERENCE CALL

Operator:

Good morning and welcome to Movida's conference call to discuss the 4Q23 results. Joining us today are Gustavo Moscatelli, CEO; Pedro de Almeida, CFO; and Camila Francischelli, IR Officer.

This event is being broadcast on Zoom and can be accessed on the Company's website at ri.movida.com.br.

We would like to inform you that all participants will be only watching the event during the presentation. Then, they will be able to send their questions on the platform, and those will be answered by the management during the conference call, or by Movida's Investor Relations team after the conference call has ended.

I would like to remind you that the content presented will be in Portuguese with simultaneous translation into English. For those who wish to follow the audio of the presentation in English, please choose the language on the interpretation globe at the bottom right of the platform. For those who do not speak Portuguese and want to listen to the presentation in English, press the interpretation button on the bottom right corner of the platform and choose the language. Participants are now free to submit questions on Zoom. All you have to do is click on the Q&A button at the bottom of the screen and enter your questions.

Before moving on, we would like to clarify that any statements made during this conference call relative to the Company's business outlook, projections, operating and financial goals are based on the beliefs and assumptions of Movida's management and rely on information currently available to the Company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions since they relate to future events and depend on circumstances that may or may not occur in our economic conditions, industry conditions and other operating factors may affect the Company's future results that leads to results that will materially differ from the forward- looking stations. The results discussed in this presentation are adjusted for nonrecurring items and reconciliations can be found in the as release and in the table available at the Company's Investor Relations website.

Now I am going to turn the call to Mr. Gustavo Moscatelli.

Gustavo Moscatelli:

Good morning, everyone, and welcome to our conference call for the earnings of the 4Q and year of 2023. I would like to start by thanking our people, more than 6,000 employees for their commitment and determination in the purpose of the year and particularly for what we already see in the beginning of 2024.

I am going to start presenting our results, starting on slide 3. I would like to highlight that we closed 2023 with important advances in this new phase of our strategic plans, focused on creating value to our shareholders. We delivered the priority initiatives with discipline in execution and agility. Showing continuous evolution in all business

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segments, including gains in productivity, efficiency and a better cost of debt for the Company.

In 2023, we had net revenue of R$10.3 billion, growth of 11% compared to 2022 with an adjusted EBITDA of R$3.5 billion, a growth of 5% in the same period. Rental results grew even further, with net revenue of R$5.1 billion, growth of 19% over 22% and adjusted EBITDA of R$33 billion, an expansion of approximately 21% in the period.

We closed the year with a total fleet of 244,000 cars, mainly growing in the GTF segment that went from a share of 45% in capital invested in 2022 to 56% in 2023, the year in which we see a substantial increase in GTF margins.

In fleet management and outsourcing, we continue our plan to grow and close the year with expressive growth of 32.7% in net revenue and 38.1% in adjusted EBITDA.

Important to highlight that the marginal growth is being conducted with diligence to ensure the profitability of new contracts. We can see the growth of profitability in the adjusted EBITDA margin, reaching 72.1%, up more than 2.8 p.p. compared to 2022.

In the rent-a-car, we had substantial improvement in the use of invested capital, which translates in an increase of 7 p.p. in overall occupancy rates reaching 70%. The segment's net revenue was R$2.8 billion in 2023, up 10.1% over the previous year.

The increase in revenue happens, thanks to the better utilization of our 113,000 assets, reinforcing our objective of maximizing capital invested. Thus, we expanded revenue per car and EBITDA per car by improving occupancy rates and the average tickets mix of marginal cars.

In Seminovo's, we had a healthy volume of sales with more than 76,000 cars sold, growth of 5% compared to 2022. The increase in the volume of sales shows our capacity to execute and the right fit of our stores throughout the country.

On slide 4, we bring the Company's priority for 2023 to create value with discipline and agility and execution and deliverables that we already achieved. Starting with the product of capital invested and free deficiency, we had expressive gain of 7 p.p. in overall occupancy rates for the rent-a-car compared to 2022, to 70%, as mentioned before. In addition, better negotiations and proactive negotiations in the use of assets. They showed expansion of 0.4 p.p. in the yield of the RAC, getting to 37% in 2023.

In addition, we continue to adapt our fleet to rental demand, reducing our average per seat check of cars in the rent-a-car by 7%, reaching 75,000 in 2023 versus 85,000 2022. As a central point of our strategy, we have operational improvements focused on asset turnover. In 2023, we reduced implementation times by 58%, getting to an effort 18 days. In productive rates reduced by 1 p.p., getting to 68%, average retirement time, 13 days, a reduction of 32%, also reaching the target for the year. With this, we gained 21 days in available assets to generate revenue during its lifetime. The third highlight is financial management.

We prepaid more than R$4.4 billion in debt that were at a high cost and contracted new debts with suitable costs for the Company and business. Thus, the average debt cost reduced from CDI+3.2% a year to CDI+2.2%, which represents R$120 million savings in

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interest over the net debt of December 2023. In addition, we raised new money of R$3 billion with an average cost of CDI+1.9%. With this, we closed the year with a capital structure even more robust to support our development plan without the need of additional capital.

Now on slide 5, we show details of the fleet residual value by purchase cycle. We have a prevalence evolution in the fleet profile due to better purchase mix and better conditions with OEMs.

The previous cycle with worse purchase conditions and were leverage ticket was reduced along the year from 75,000 to 33,000 cars. The cars were bought at a time were of less favorable purchase conditions, higher and resulted in higher depreciation paid during their lifetime.

As you could see, they were at 12.5% and 13.5% a year purchases as of the 3Q22, the first 2 lines of the table, adding up to 62,000 cars had an average ticket that was more affordable due to the normalization of OEMs and better commercial conditions. Therefore, they have depreciation rates between 7.5% and 9.5% a year.

At the end of the year, we had a detailed analysis of the residual value of our fleet due to an even more challenging used power market as we saw in the 4Q. In December 2023, we had an additional depreciation of R$39 million in rent-a-car costs, which is 2% of our total vehicle asset.

This nonrecurring impact is a result of the more challenging scenario for used cars in the 4Q but also our strategy to anticipate the sale of the score to benefit from purchase times with better conditions from OEMs. As a result, we should continue with depreciation rates at the rate the car between 8% and 9% a year as of January 24, stabilizing margins, having a better read on the business and allowing for a new cycle of value creation to shareholders.

On slide 6, we show Movida's consolidated financial results. Net revenue was R$10.3 billion, 11% above the year of 2022. Rental EBITDA revenue grew 19%. Adjusted EBITDA reached R$3.5 billion in the year, an expansion of adjusted rental EBITDA had a growth of 21% year-on-year.

Growth in rental EBITDA is very relevant for profitability indicators in addition to bringing more stability and predictability to the Company's future results. Adjusted EBIT was R$1.8 billion year-to-date. Here, we can observe the effect of the increase of the recurring depreciation rate in the period. I would like to draw your attention for the contribution of GTF in the consolidated numbers, accounting for 66% of rental EBIT compared to 53% of the previous year.

Adjusted rental EBITDA margin was 63.7%, an improvement compared to 22% on quarter-on-quarter comparison. It also showed an improvement of 1.7 p.p., showing successful in the actions implemented along 2023 in all business lines.

On slide 7, we show no recurring effects that we had in 2023 results. We adjusted the impacts so as to favor comparability and to better reflect the year's net results. Impact number one, as we mentioned, is the additional depreciation of R$390 million in rent-a-

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car cars. Important to mention that this has no cash impact and represents 2% of the total vehicle assets.

Impact two is also noncash and it's related to the payment of the spread installment of acquisitions of the Company in previous years, thinking of the assets sold. It is R$139 million. In addition, the write-off of deferred income tax of this company is because of the mergers also generated an impact of R$52 million in results.

Impact 3, are nonrecurring expenses related to business improvements, like the closing of 6 used car stores, downsizing and expenses with the strategic consulting projects.

Finally, Impact 4 is related to the impact in the financial results of rates and losses due to the prepayment of debt, especially related to the bond overseas. These impacts will have a positive impact in 2024 by the normalization of the rent-a-car depreciation rates around 8% since the 1Q24, simplification of the corporate structure that we believe will generate a reduction of R$32 million, and reduction of costs and expansions by the implementation of new pricing tools and asset turnover tools.

On slide 8, we bring our strategic plans for 2024. The priority is to increase value to shareholders, and three actions were selected for that. The first has to do with the adjustments of the rent-a-car price rates. This is our number one priority for 2024. The price adjustment that we estimate will lead to the rent-a-car monthly yield from 3.7% a month to 4.2% a month. With that, we are going to go to a new level of business profitability. It should bring approximately R$387 million of revenue a year with the same capital invested.

We are confident that after all improvements in process, free operational efficiency. And systems which along the year will give us the basis to reach our objectives. Also, we would like to mention that the potential that can be captured can take us to levels close to 4.6% yield to month. In used cars, we want to improve productivity and efficiency of our stores by having a higher volume of retail sales and reducing discounts.

The improvement in profitability for these is 21% per store, reaching 34 cars per location and improving the dilution of fixed costs and profitability. In addition, we are having a better mix of cars in our stores. And together with tools that we developed in terms of car distribution and management we are going to have better discounts compared to the fleet table. As for GTF, we continue to prioritize the greater allocation of capital in this segment, which is more predictable in terms of cash flow, profitability and has better operation margins for the Company's consolidated results. We went from 45% to 56% of capital invested in 2023. At this pace, we can get to 60% in 2024.

On slide 9, we bring you a preview of the first 2 months of 2024 non audited. The results bring us very encouraged because it shows all the work made along 2023. In the first 2 months, as you can see, we had net profit of R$21 million, reversing the negative results of R$23 million. The net profit of R$21 million is 100% related to the operational evolution with gains in margin and a better financial cost, our priorities in 2023.

Our net revenue grew 16.4%, reaching R$1.9 billion. EBITDA had a growth of 20%, with substantial gains in margin, as I mentioned before. In the rental segment, there was an expansion of 3.9 p.p. compared to the first 2 months of 2023. I would like to highlight the

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evolution of the rent-a-car EBITDA margin, which is above 62% now compared to 54% in the 4Q23. GTF profitability continues healthy in levels above 72%.

And you cast the Seminovo's segment. We show that the performance of these 2 months was even higher than expected for 2024, with sales of 35 cars per store and important evolutions in pricing, both at the retail and wholesale markets.

We see stability between these two channels, keeping EBITDA margin at normalized levels, close to 2%. EBIT had even more substantial growth of 38.4%, reaching R$386 million in the first 2 months, which can be seen as a turning point in terms of value creation.

On slide 10, we bring the return on invested capital evolution in the Company, showing an inflection point for the creation of value in the beginning of 2024. The right initiatives conducted in 2023 enable us to get to a ROIC of 10.2% in the first 2 months, reaching a positive spread compared to the cost of debt in 1.2 p.p. with a trend of growth for the return and reduction in the cost of debt.

This evolution, together with other actions mentioned before, will lead us to very healthy levels between 4p.p and 7p.p. with a sustainable profitability to our shareholders.

Now I will turn the call to Camila, the Company's IR Officer, to present our business unit's results. Camila?

Camila Francischelli:

Thanks, Moscatelli. Good morning, everyone. On slide 12, we have the operating highlights in fleet management and outsourcing. We continue growing the contribution of long-term contracts in the Company's consolidated results. We closed 2023 with total fleet of more than 130,000 cars, growth of 16% over 2022.

The volume of daily rate was R$9.8 million, up 12% the previous year due to an addition of operational fleet. Our backlog of contracted revenue considering contracts already in operation, R$4.5 billion, up 74% compared to the 4Q22 and 18% over the 3Q23.

The amount of cars that we have to deploy of recently closed contracts also showed strong growth in 2023, reaching 18,700 cars, more than double the volume of December 2022. That shows the contracted growth of this business line, ensuring more predictability and stability of results in the coming periods.

On slide 13, we have financial GTF indicators. Net revenue grew 33% versus 23% in a total of R$2.3 billion in 2023, or 45% of the total rental revenue. In addition to growth in volumes, once again, we have an expansion of 18% in revenue per car, reaching R$2,275 in the 4Q. Adjusted EBITDA for the quarter was R$464 million. In the year, R$1.7 billion, up 38% compared to 2022. Adjusted EBITDA per car also had a new high in the 4Q, with an average R$1,446 per month, evolving more than 23% compared to 4Q22.

The slide 15 shows the highlights for rent-a-car. Total fleet 113,000 cars at the end of 2023, basically stable compared to the end of 2022 average daily rate, R$126, while almost virtually the same than 4Q22.

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Even more important than the rate itself is the yield. As Moscatelli mentioned, it increased by 0.4 p.p. in 2023 compared to 2022, and 0.6 quarter-on-quarter, reaching 3.9% a month in the 4Q23.

In addition to the adjustment in the fleet mix, an important point for the evolution is occupancy rate. Year-on-year, thinking of total fleet, the indicator grew by 7 p.p., as we mentioned. Thinking of operating fleet, we closed 2023 with an occupancy of 79.7%. In the quarter, we grew even further, reaching 82%, more than 5 p.p. above the 4Q22.

On slide 16, we see the rent-a-car financial highlights. Net revenue, R$2.8 billion in 2023, up more than 10% year-on-year. As a result of the expansions we just mentioned, the revenue per car had a new sequential increase, getting to a record of R$3,083 per car per month in the 4Q23. Adjusted EBITDA was R$1.6 billion in 2023, growth of 6.6% compared to 2022. EBITDA per car also grew, getting to R$1,596 on the average of the year.

On slide 18, we show sustainable performance in the used car operations, with the sale of 76,200 cars in the year, up 5% compared to 2022, with a healthy turnout of our fleet. Net revenue was more than R$5.2 billion in 2023, growth of 4% compared to the previous year. EBITDA margin for the year was 5.1%; in the 4Q, 3.5%, closer to normalized levels of this business line.

Now I am going to turn to Pedro, our CFO.

Pedro de Almeida:

Thanks, Camila. Good morning, everyone. On slide 20, we break down the profile of our balance sheet. The first chart shows the evolution of our net debt. In the 4Q23, it amounted to R$12 billion, and it's covered by 1.5x the net value of our fleet, as we already saw in the 4Q22.

This chart shows an important rational of our credit profile. Coverage of our debt by a very liquid assets, comprising basically low age and mileage car. We evidenced the strengths in 2023, particularly in the 1H, when we reduced the rent-a-car total fleet and applied the capital generated in the management of our liabilities, reducing our financial costs. Our leverage kept at 3x along the year, closing at 3.1x in December 2023.

I would like to highlight the strength of our capital structure that enables us to develop our development plans without a need for additional capital via equity.

Our gross debt reduced by almost 15% compared to the 4Q22, basically on the liability management that we conducted along the year. We closed 2023 with total gross debt of around R$15 billion. Better condition and payment terms negotiated with OEMs continue to help the Company's cash flow dynamics and management of working capital in the 4Q of the year.

On slide 21, we have the cash and schedule of debt maturity. We can see our current cash position of approximately R$3 billion is enough to cover gross debt payment by mid-2025. In addition, 100% of debts to mature in 2024 were refinanced by 2 new financings of the beginning of the year.

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Still in financial management, I would like to mention that in 2023, we prepaid our more expensive debt in the amount of R$4.4 billion that had a cost of approximately 140% of the CDI. New funding along 2023 adds to R$3 billion, with an average cost of CDI+1.9% a year an average maturity of 4 years. That shows the diversification of our financing sources and the support to the credit market gives to our strategic plans.

The result of these initiatives was reducing the weighted average spread of all our debt by 1 p.p., going from CDI+3.2% in December 2022 to CDI+2.2% in December 2023. To close my presentation, I would like to remind you that the Company continues with better assessment of credit risk with a AAA rating by Fitch.

Now I turn the call back to Gustavo Moscatelli, to complete our presentation. Thank you very much and best regards.

Gustavo Moscatelli:

Thanks, Pedro. Finally, on slide 22, we summarize the Company's new phase for 2024. As you could see along the presentation, the combination of evolution of operational efficiency and a solid balance sheet, enabled us to resume positive profit in the beginning of 24%. As with we deal with 2023, in 24, we will continue to increase the contribution of GTF contracts to our hope because they bring profitability and stable results. Today, we have the suitable fleet mix to the rental demand, and we are very healthy for the sale of used assets.

That enables us to improve our mute and reduce maintenance costs. We are also at a healthy level in the rent-a-car depreciation rate with a better mix and better pungency conditions. We are prepared to have healthy profitability levels. In the beginning of the year, we can see the proven capacity of our used car stores with installed physical structure and no need to open new stores.

In the first 2 months, we already saw an increase in the sales volumes reaching 35 cars per store, and we will keep our equity balance sheet with a healthy leverage. Today, we have a cost of debt that enables creating value to shareholders without the need for additional capital, as Pedro mentioned, to close.

I would like to reinforce that I am absolutely certain we are on the right path and have discipline and agility to execute our plan. We are ready to start a new phase of value creation.

We will now open to your questions. Thank you very much.

Victor Mizusaki, Bradesco BBI:

Good morning. I have two questions. The first concerning the rent-a-car yield 4.7%. Please, if you could give us a bit of color on the mix, if you have an increase of the corporate line here.

And second question, thinking for the budget of 2024, and sources and use of resources, what are you thinking in terms of sources? My question has more to do with what you showed in the presentation. You are talking about debt amortization in 2024. You already

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said that you already had two new funding in March, but you have a bit of working capital in the suppliers line, we should expect Movida selling a bit more cars in the 1H of the year, because thinking of the snapshot of December, you had a bit of a higher purchase at the end of the year. So you do not have to give us precise numbers, but at least X% in the sale of cars, X% from services, that will help us a lot. Thank you very much.

Gustavo Moscatelli:

Victor, thanks for your question. I will start with the rent-a-car yields. 2023 was a year that we were very much focused on increasing productivity on the capital invested for the rent-a-car, and you all saw the substantial increase in occupancy rates for the segment. So that naturally led us to have a higher revenue per car, capital invested generated value for longer, and therefore, we went from 3.3% to 3.7% in our operational yield.

The next step is 4.2%. That's our target, something we believe we can reach this year, keeping a high occupancy rate as we closed last year, so above 80%, and total occupancy rate above 70%, but now with another seasoning for this yield adjustment, which is the price adjustment of our daily rates.

If you see the price of cars, interest rates, all the inflation base really changed and evolved in the last 2 years, and the sector's daily rates did not have the same adjustment. So you will remember that we focus on a new pricing tool developed last year, and together with this tool and the time in market, we are very much focused on adjusting prices. And in the 1H of the year, we are probably going to be able to show part of this increase from 12% to 14%, as we mentioned.

Again, we focus on adjusting just one-off daily rates, and then we are going to start focusing on the monthly product rate. So the results of the 4Q show that, and when you see the yield, it is going to be even clearer.

Your second question, use and sources for 2024. This is very much based on the business cash generation. You saw in the first 2 months that we showed a preview with EBITDA growing 20% compared to last year, and we do not see a reason for it to go down. So that will naturally bring a much stronger cash generation for the Company, and I think that, in terms of debt profile, we have a very positive positioning.

As you mentioned, we basically do not have any debt maturing in the short term. Whatever we had was already renegotiated, so all cash generation for this year, and as I mentioned, at least 20% higher than last year, will meet our needs for the purchase of cars and fleet renewal.

Just one comment on suppliers, Victor. If you take a look, the supplier lines in 2022 accounted for 13.8% of the Company's fixed assets. In the end of 2023, it doubled, it went to 26%. That shows that we focused on all stages of the asset cycle to extract value, especially in the rent-a-car, whose main source of profitability is more elastic time with OEMs, which is what you see in the supplier lines.

That helps with profitability and cash flow. And that, I believe, is a strength of the Company in more recent negotiations, and has translated in value creation, as you can see with the ROIC that we disclosed for this earnings release.

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Guilherme Mendes, JPMorgan:

Good morning. Thanks for taking my question. My first question is for the used cars market. You did give us a preview in January and February, and it's clear that the market compared to expectations at the end of the year is worse. But if you could give us a bit more color on the market in recent weeks, price level, just for us to understand and think of depreciation from now onwards.

And the second is a follow-up of the previous question, with liability management and balance sheet. How do you see the trade-off between growth and possible restrictions in leverage? In the beginning, equity seems not to be a priority as a growth lever, but with a leverage of 3x, how much do you think you can grow in terms of fleet percentage, keeping this leverage constant? Thank you.

Gustavo Moscatelli:

Good morning, Guilherme. Thanks for your questions. I will start with the used cars. As I mentioned in the presentation, the scenario for the 4Q was quite challenging. We saw deterioration in car prices, but in the 1Q24, that was very clear for the results that we released, we saw an improvement in the credit environment, so more flexibility and speed from banks in approving credits that helped with car liquidity. And also, in the last 6 months, Guilherme, we saw used car prices, at least in our mix, quite stable, which is very different from what we saw in the 4Q23.

So for used cars, we have been positively surprised. Sales volume for the first 2 months was a record, so productivity is also quite good, and that has a very important dilution in fixed costs, as we mentioned. So, a better scenario. Of course, it's still not pre-pandemic numbers, but a lot better than what we saw in the 2H23 and 4Q. And that makes us naturally think of a stable depreciation rate between 8% and 9%, which we showed in the presentation. So given the scenario, I do not see any challenges with regards to that.

As for growth and leverage, we have a plan designed for the next 5 years that is very clear in objective: allocating capital in GTF that has a much better EBITDA margin than the rent-a-car, almost 73% so far; recurrence cash flow that is a lot stronger, and that make us to have a planned growth for GTF of approximately 15% a year in the next 3 years, and with the rent-a-car with stable fleet.

With this growth that I mentioned in GTF and the rent-a-car fleet practically stable, we are able to manage the Company in the coming years with no need for additional capital and keeping leverage of around 3x, which obviously, considering declining interest rates in the Company, makes an even healthier balance sheet for the Company.

So these are the plans and what we agreed with the Board of Directors.

Lucas Marquiori, BTG Pactual:

Good morning. Thanks for the call. I have two questions on my side as well. The first, just to understand the impacts of the 4Q. I understood the adjustment and additional depreciation. If you could just explain the adjustments related to your acquisitions, because I do not think that has an effect on the cost. It's just for us to understand this

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adjustment. And also consulting costs, is it a specific project, digitalization? What is it exactly?

And also the rent-a-car margin, it seems that the beginning of the year was better than the end of the year. What do you think happened in January for this to be better? And I would like to understand also what you are expecting for the year in terms of the rent-a- car margins.

Gustavo Moscatelli:

Lucas, thanks for your questions. I am going to start with nonrecurring items that you mentioned. We bought some companies in the last year, and part of the spread paid for these companies was included as added value of assets of the companies that we bought. In the end of the year, we incorporated all the taxpayer numbers and recognized this added value in results. It is a noncash effect. And if you think of 2024 onwards, that generates a benefit of R$32 million in taxes a year. So that was the reason for the restructuring of companies inside of Movida.

So basically, we incorporated all acquired companies, recognized the added value attributed to these companies, noncash effect, and from now on, we are going to have a benefit of R$32 million in avoided taxes for the year.

Second question you asked one, the consulting. The two main projects for the consulting that we hired last year were, first, to develop a new pricing tool for the rent-a-car, a dynamic tool that enables us to extract more value in a smarter way in the rent-a-car segment; and the second is a tool that will give us the optimum time to retire a car from the rent-a-car. So thinking of the whole asset turnover to be as precise as possible in the retirement of cars and extract the best value from each car.

In this line, R$22 million, we are not talking only about consulting costs. It's also the closing of used car stores, 6 altogether, downsizing, and that leads to a nonrecurring cost and the consulting.

For the rent-a-car margin, I think the 62.3% margin of the 1Q is very clear. And basically, what's happening is that we are enjoying all the initiatives and actions that were our priority last year.

So asset productivity, cost reductions, better SG&A, all that translated and is translating in the 1Q in better rent-a-car margins. We already have an increase of prices in this margin, but it is not the bulk of the difference compared to the 4Q. So most of it is enjoying the initiatives that were planted last year.

Rogério Araújo, Bank of America:

Good morning. Thanks for the opportunity. I have two questions on my side as well. The first is perhaps just to understand if I got it right. Based on the last call, one of the main drivers to recover profit along 2024 would be reducing depreciation rates, since the Company was selling cars that were paid at worst purchase conditions. Now, with this mark-to-market, we should expect an adjusted stable depreciation rate as of January of this year. Is my understanding correct? And with that, what is the trend of your profit for the year, and what are the main drivers for this trend? So this is my first question.

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