Positivo Tecnologia S A : 3Q21 Results Presentation Transcript11/11/2021

Conference Call Transcript

3Q21 Results

Positivo Tecnologia (POSI3 BZ)

November 11, 2021

Renata Oliva:

Good morning, everyone, and welcome to 3Q21 Positivo's earnings release. My name is Renata Oliva, I am the IR Officer, and it is a great privilege to be here with you.

I would like to introduce Helio Rotenberg, President, and Caio Moraes, Chief Financial Officer and IRO.

This conference is being recorded, and it will be made available at our website, where you can also find the presentation that supports this conference. For those of you who need simultaneous interpretation, you can find an icon at the bottom of your Zoom bar written 'interpretation'. Please, click on that, and then select the language of your preference, either English or Portuguese. For those of you listening to the interpretation, you can click on 'mute original audio'.

For the Q&A session, we kindly recommend you send us your questions using the Q&A icon at the bottom of your Zoom bar. You will also tell who you are so that you can ask your question, and you will see a message asking you to unmute yourself.

We would like also to mention that any statements related to business outlook, projections and operating goals of our Company are the beliefs of our administration, as well as based on current information available. Forward-looking statements do not guarantee our performance because they refer to future events, and thus depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, market conditions and other operating conditions may affect the Company's performance and lead to results that materially differ from such forward- looking statements.

Now, I would like to turn it over to Helio to start the presentation.

Helio Rotenberg:

Good morning, everyone. I am very happy to be here for this quarter's release. You will see that our results have been quite consistent.

Let me talk about the 3Q, so that the market can rest assured of what is going on with our Company. Our revenue achieved a record, and these numbers have been consistent over this year. So R$979 million in this quarter, and our annual EBITDA, R$348 million, another record.

Our gross revenue, 63% increase over the 9M, up by 78%, gross margin 24% as well, as compared to what we had last year. And last year, we also had the same revenues coming from taxes, and that is why the number seems to be lower, and adjusted EBITDA much higher than in the previous time period.

Next slide, please. Our highlights for this quarter. I would like to comment and say that, and we have grown in every single business unit: consumer, corporate and government.

We are very happy that as soon as the exclusivity we had with the smart payment machines with Cielo ended, our team started to work. Now we signed a large contract with Stone, and we have a very strong pipeline with many new buyers and sub-buyers, many retailers. This is certainly a very relevant market, and we are very strong, with a

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Conference Call Transcript

3Q21 Results

Positivo Tecnologia (POSI3 BZ)

November 11, 2021

large, broad portfolio, not only with smart machines, but we also added some payment machines in order to broaden our portfolio.

Also, high volume of sales in computers, 58% increase year over year. And what we see is that our gross revenue is also presenting good results, such as HaaS, 120% increase against the same quarter last year, thanks to the corporate market, and also increasing HaaS considering the corporate market itself.

As for government organizations, this is a unique situation, and we have been operating in this market for the last 30 years, but I have never seen so many RFPs and bids. We have already signed contracts, or to be signed there. That counts for R$1.7 billion for the 1Q22; R$450 million this year and the rest for next year.

Just as in the corporate market, we see this growth, this hybrid and in-person work. Companies are now replacing their equipment, and they are also adding and buying notebooks and tablets for students via the Secretariat of Education at municipal and state level. And they do have that budget, because 25% of their budget should be earmarked for education.

And we had students at home, distance learning, but now students are going back to school, as well as companies are now having workers going back to the workplace. And we also have a very strong pipeline of RFPs and bids.

Another great piece of news is that we are now also participating in this new process of electronic ballot boxes, and we are going to start delivering this year, and all the amount by June next year. And we are the only approved company to also run for providing electronic ballot boxes to 2024. So we are now already working on our request for proposal.

Next slide, please. Now I am going to focus on our business and our revenue. 50% comes from consumers, 27.9% from government organizations and 15.9% corporate. That means that we also see an increase in corporate. We can see that all of the three major areas have grown.

So if we compare here for the 9M, R$2.7 billion against R$1.5 billion last year, and we can see that the numbers are very consistent quarter after quarter, because of this core business growth avenues and the three areas that we operate on consumer, corporate and governments organizations.

As for consumer, sales to our end consumers, smart homes, laptops and notebooks, direct sales by our websites, we see this growth from R$845 million to R$1.5 billion. We also see an increase in the number of notebooks sold in retail, and it is also very important to say that in September, we saw a slowdown in the purchase of notebooks, although still above 2019, but not as big as what we had at the beginning of 2021.

But we actually expected that to happen after we had the activities resuming. So now, we do not see that willingness to buy notebooks, but it is still above what we had in 2019, and we actually already pictured that, to have numbers above 2019 and slightly lower than what they had in the same period last year and the 1H21.

We also signed also a partnership with Infinix, and Transsion Holdings, the sixth largest company worldwide in smartphones. It is a company that is increasing its presence,

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3Q21 Results

Positivo Tecnologia (POSI3 BZ)

November 11, 2021

and we are really betting on this partnership. And we chose Infinix, which is a brand that caters to young, tech savvy individuals.

Our smartphones are being at R$1469, but with very good settings. I am using an Infinix, and it is really great. I think it is really worth getting to know it. And we expect to increase our share. And we have a very strong presence of Positivo, with smartphones that cost at most R$1000. But we are now trying to be present in the different market segments. So this one is for premium smartphones, just as we did with laptops.

And also, our P3 project. We have all these major retailers. We are working strongly with large retailers, but now we are working with 101 to 3000, so working with the smaller retailers, and we also saw an increase by 32% with small retailers.

Smart homes also, 235,000 new users. So now we are totaling for 580,000 users of our smart home app, which is really great, and aims a future that will also allow us to see a recurrent revenue. Products are being welcomed, they are being bought. We are now holding a large brand campaign, and two days ago, we also had a very important conference, sharing these products with a new line of routers.

So we are also increasing our portfolio, not to mention the Do It Yourself, which is also a big seller. But also, this is being sold in major companies, where these products are offered.

As for corporate, we see an increase by 24% quarter over quarter. Notebook sales increased above sales of desktops. HaaS, an impressive number, it already accounts for 15% of this quarter's gross revenue, which is great. Recurrent revenue increased, and we really enjoy these recurrent revenues, although we still have a very important revenue coming from single purchases. And we are also increasing our customer base.

As for the payment machine, we have signed a contract now with Stone, and we are going to deliver this 4Q and also next year. And this is really a very strong pipeline as well.

Next slide. I have already commented about government organizations. I already shared some numbers, R$761 million, against R$342 million last year, and we expect this number to increase next year, and also considering the R$1.7 billion of revenue coming from contracts that have already been signed or to be assigned. And we also have a very robust pipeline.

We calculated, and there are an increasing number of RFPs, accounting for R$6 billion. The volume of notebooks delivered has also increased. So once again, notebooks increased above desktop. So the pandemic also allowed us to have this increase.

And the strong demand coming from public schools. The Secretariat and Department of Education had some fund left, and the pandemic really demonstrated how important it is for students to have a notebook, a tablet on their hands so that they can study.

And also for HaaS, hardware as a service, we also have this totems available. It is merely a computer, but with a new presentation. And also, the rental and leases of notebooks and tablets to public schools.

And we believe we present a unique presence, with unique engineering and products that allow us to keep on growing.

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Conference Call Transcript

3Q21 Results

Positivo Tecnologia (POSI3 BZ)

November 11, 2021

Now I would like to turn it over to Caio, our CFO, so that he can go over their financial highlights.

Caio Moraes:

Thank you very much, Helio. Good morning, everyone. It is really a great pleasure to be here.

Let us start with the gross margin. As Helio mentioned, we really have very healthy numbers. Here, you can see 23.9% in the 3Q, and in 9M to date, 24.4%, because we have a very solid margin and a better product mix and service mix, hardware as a service, and this revenue has increased 83% year to date. And also, technical services, for this quarter, 288%, and year to date, 462%. So that certainly has impact on our margin, as you can see on this slide.

Next, adjusted EBITDA. Obviously, this number also relates with our strong presence. Another quarter with a good number, you can see R$253 million year to date, and R$89 million quarter.

I would also like to clarify that the drop in the margin in this 3Q against last year's quarter is related to the comparison basis. First, as Helio mentioned, last year we had revenue coming from taxes such as IPI, which has already been converted in cash and that was recognized in the 3Q20. And also, starting in June of last year, we also decreased working hours. So that also had an impact on our comparison basis.

And it is also very important to stress that, as for operating expenses, this is really aligned to what we had in 2020. So in 9M21, we achieved same level of revenues. If we consider, for example, the expenses, we actually had a decrease, as well as for operating expenses.

Now moving to our next slide, our financial results and net income. As for the expenses, as I mentioned, we had really to fund and to borrow for our working capital, not to mention the Selic rate. And as seen before, we are also generating more cash, and that is certainly proved by the results.

So we see a very healthy leverage. We can see that against EBITDA, adjusted one, against 1.3 in the 3Q20, not to mention the FX changes that we promoted. We implemented mitigations in order to fight the FX volatility. So today, we have in the quarter a net income of R$54 million, and year to date, R$161 million.

So now for a capital market, I would like to highlight once again that the Company entered IBrX 100 in this 3Q, not to mention the expressive number of stocks that have been negotiated, 483% increase. And also, an increase in the number of institutional investors, 63% increase. And also, the numbers we have here are related to the stock exchange market numbers from yesterday.

Now let's turn it over to Helio for his final remarks.

Helio Rotenberg:

For the first time, considering all of the market uncertainties regarding computer market, and giving you an outlook for next quarter, we will achieve R$1.5 billion to

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Conference Call Transcript

3Q21 Results

Positivo Tecnologia (POSI3 BZ)

November 11, 2021

R$1.4 billion. We are still facing challenges, particularly considering international freight. So we do not know exactly what we will be able to recognize for that quarter. But our outlook for the 4Q is revenues of R$1.2 billion to R$1.4 billion. And with that, the Company's annual revenue will achieve R$4 billion, an amazing growth compared to 2020.

We also see strong demand in all business units. I would say that not as strong in consumers, although we do have Black Friday and Christmas coming up around the corner, and our growth avenues working, all of them taking place. HaaS, P3, and even servers that presented a not so strong result.

It is important to say that we achieved good results compared to last year, and I would say that our performance is really good.

I have already mentioned some numbers for next year, considering the electronic ballots, 935, which will be delivered, and we have R$1.2 billion that has already been signed for next year. So that demonstrates that we are going to see a very robust performance next year.

So I believe that everything we planned starting 2017 by diversifying our revenue source is now bearing fruit. We should not depend on a single product, on a single segment, consumer, or corporate or government, not only on computers and notebooks.

So we are now present in different areas, and this changed by presenting different laptop brands. Also, now we are increasing our smartphone portfolio, and also in IT, with Positive Servers and Solutions. And when we think about 5G, we will also see the need of more servers.

Our education technology is also being very successful, and it will play a very important role with regard to education software, the ones we produce, and also considering Brazilian and international startups.

Also, we see an increasing in smart home app, 480,000 already. And also, we have, for example, sales for buyers and sub-buyers and retailers. We also see this contract signed with Stone that is for smart payment machines.

So what we see is the technology presence in our society has increased and it is here to stay, and we have been able to deliver revenue, and also profitability in a very healthy performance, so that we can keep on growing.

Thank you very much for your attention. Now we open the Q&A session.

Marcos Nardini, XP Investimentos:

Good morning. I would like to commend you for your results, and I have two questions. First, can you please elaborate on how you see the increase in revenues and impact on margin in 2022 with the Infinix?

And the second is about retail. Can you please talk to us about how retail is doing in these first months, and also considering Black Friday? So what are your expectations with regard to retail?

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