Movida Participações S A : 2Q23 Conference Call Transcription

2Q23 RESULTS CONFERENCE CALL

Operator:

Good morning, and welcome to Movida's conference call to discuss the results regarding the 2Q23. Today with us, we have Mr. Gustavo Moscatelli, CEO; Pedro de Almeida, CFO; and Ms. Camila Silva, IR Director.

Right now, all participants are in a listen-only mode. We will later start the Q&A session, when further instructions will be provided. Should any of you need assistance during the conference call, please reach the operator by pressing *0.

Before moving on, we would like to let you know that any statements made during this conference call relative to the Company's business outlooks, 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 refer to future events, and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the Company's future results and lead to results that will materially differ from those in such forward-looking statements.

We will now turn the floor to Mr. Gustavo Moscatelli. Please Mr. Moscatelli, you may go on.

Gustavo Moscatelli:

Good morning, everyone, and welcome to Movida's conference call to discuss the earnings of the 2Q23. First, I would like to thank all Movida's employees that are working with lots of discipline with our main objective, which is creating value to our shareholders, and dedicating daily to deliver all improvement points we mapped for this year. Thank you.

Now I am going to go on with the presentation of our results. Slide 3 shows the evolution in all our businesses, seeking to extract maximum value to operational efficiency in each business model. We are executing in detail the strategic plans to create value, which results even before expected.

Our net revenue was R$2.5 billion in the quarter, a growth of 23% in the revenues from rental since last year, with continuous evolution in all business segments and focus on operating efficiency. Operating fleet increased 10% year-on-year with 204,000 cars total fleet; EBITA, R$890 million. And capital structure is more and more healthy and robust with reduction in leverage 2.9x EBITA net debt in the quarter.

In the Rent-a-Car segment, we had a transformation in the 1Q with a reduction of 8,000 cars in the 2Q, all together 21,000 cars compared to 4Q22. Total fleet of 90,000 cars. I would like to highlight the increase of total occupancy rate is 6 p.p. year-on-year, 70.7%, which shows a positive reflect in operating improvement and the use of capital invested.

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In fleet management and outsourcing, we continue with our plan to grow and close the 2Q23 with 114,000 cars, an increase of 16% in the operating fleet against the 2Q22 and already 56% of the Company's total fleet. Important to highlight is that the marginal growth is being done with diligence to ensure the profitability of new investments.

In used cars, we kept a high level of sales, about 19,000 cars sold in the quarter. We continued to sell cars with higher tickets, especially in the rent-a-car segment, about R$76,000 per car, which led us to reach R$1.2 billion in the quarter. The highlight was the margin of used cars which has an extension of 7.7% versus 5.9% in the 1Q. This is very important, and that shows that the value of our assets is correct and that we are close to the turning point to reduce depreciation rates.

Now I am going to slide 4, where I bring work fronts that are a priority for the Company to generate value and discipline and execution in delivery so far. Starting with financial management, which is an important focus. We prepaid R$3.3 billion in the half year, and R$1.1 billion in the 2Q by buying back local debt and bonds issued abroad, significantly reducing the cost of debt and cash carry-on.

We also had a reduction of R$1.3 billion in the supplier line compared to December 2022, with our equity balance sheet even more sustainable. It's important to highlight that we kept a robust cash position of R$2.6 billion, which places us in an extremely comfortable position to continue executing our strategic plans.

As a second point that is core for this strategy, we have improved efficiency in our fleet, reducing more than 8,000 cars in the Rent-a-Car operation this quarter compared to the 1Q, while net revenue and EBITDA grew compared to the previous year. This sailed through to a fast-operating efficiency based on a detailed analysis of our fleet, releasing R$1.7 billion in capital invested.

The third highlight is related to efficiency and productivity. We had a substantial gain of

6 p.p. in the Rent-a-Car total occupancy compared to the 2Q22, with 70.7% through operating improvements, focusing on the asset turnover that I am going to talk about later on. This is very important to maximize capital invested and create value. I believe there still has room to improve this indicator for the coming quarters.

The fourth highlight is improvements in management. We have our teams focused on the delivery of priority products we listed at the beginning of the year. We had a quick advance and we already delivered 8 projects out of the 19 selected. In addition, we had some adjustments in our structure, reducing costs and making the Company management even more objective.

On slide 5, I will give you some details on the gains of efficiency in asset turnover. As you can see in the first chart, we had a reduction of 8,900 cars in the total fleet and the operational fleet was reduced by 3,800 cars, releasing capital investment that was not being compensated. The reduction is 100% related to the resizing of our RAC fleet with an acceleration in the volume of sales, reducing 8,000 cars in the total fleet. With that, we had a relevant evolution of 6 p.p. in total occupancy rates measured by rented fleets over total fleets compared to the 2Q22. That is, we are being more productive compared to the capital invested, which is crucial for us to get to a new level of profitability.

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As for fleet management and outsourcing, we continued growing with discipline and vigilance in the closing of contracts in the long term to ensure future profitability. You can see that we had growth in the operating fleet, and we closed with a record volume of cars in the backlog for the purchase of OEMs. That happened because we helped the negotiation of the purchase of cars until the end of the government incentive program to be sure of the prices and ensure marginal profitability.

Now I am going to turn to slide number 6. It is very clear to us that our largest gap to ensure value in the Rent-a-Car segment is related to asset turnover. So here, we give you a breakdown of the 3 most important indicators and their evolution. We are able to improve in the quarter 13 days in asset turnover with the implementation from 31 to 23 and retirement from 19 to 14 days. We believe we are going to get to optimization between 25 and 30 days considering all initiatives we have ongoing, as you can see in the above charts. And this way, this pillar that is crucial to create value contributes to the business, transforming marginal profitability.

Now on slide 7, as in the 1Q, we brought an important analysis to change the level of profitability, the change of part of the Rent-a-Car fleet mix. In the first chart, you can see we had a spread of 1,500 rides per car between purchase and sales price with favorable dynamics for cash flow and for a new cycle of profitability. In fleet management, the dynamics are completely different since the asset cycle is based on long-term contracts. This new level of prices is beneficial because it will bring even higher growth in revenues and EBITDA.

The bottom chart shows the difference between the purchase and sales price consolidated, which was R$26,200 in the GTF segment. Still, when you take a look at liquid CAPEX, once again, we had negative CAPEX this quarter, more than R$700 million in the year, contributing to our commitment to generate value.

On slide 8, we bring you details on the improvement of the fleet mix of the 2H23 and the reflection of that in marginal profitability. We closed 2022 with an average ticket of R$85,000 per car which went down to R$83,000. We believe that until the end of the year, we are going to go down to R$78,000 to get to an ideal mix.

And that will bring 3 major benefits. First, we are going to have positive cash generation, selling cars with a higher ticket and buying cars with a lower ticket. Second, a reduction of 8% in the fleet's average ticket will bring an increase to the margin yield because our fleet is going to be more aligned with the booking and more compatible to the revenue generated, and also a reduction in depreciation and maintenance costs with cars with lower tickets.

On slide 9, we show the financial results consolidated. Net revenues in the quarter were R$2.5 billion, an evolution of 11% compared to the 2Q22 and 25% compared to the 1Q last year. EBITDA reached R$890 million in the quarter and R$1.7 billion in 1H23. I would like to highlight the expansion of revenues and rental EBITDA that grew 23% and 13%, respectively.

The expansion of the resulting services brings more profitability and resilience for the Company's future results. EBIT was R$501 million in the quarter, R$986 million in the half year. Here, we can see the effect of the increase in depreciation rate from 5% to

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10% a year that we had at the end of last year and the potential for better results with an eventual reduction in those rates.

I would like to draw your attention to the contribution of GTF, 64% of the rental we did in the quarter compared to 45% in the 1H23 of last year. This is very relevant for profitability indicators in addition to bringing more stability and predictability to future results.

Finally, I would like to mention that we have neutral profits in the quarter, but we are committed to delivering the necessary changes.

Now I am going to go on to slide number 10 with an analysis of depreciation. Here you can see the evolution of depreciation rates in the Rent-a-Car and GTF. As you can see, depreciation in the Rent-a-Car was stable, 10.3% compared to the previous 2 quarters. With that, we believe we probably got to the end of the increased cycle caused by the transition of the fleet. And certainly, we will have a reduction soon because of better purchases in the marginal fleet. You can also see a slight improvement in the reduction of 4% in the depreciation rates, again, fruit of an improved mix.

In the second chart, we see GTF with a slight increase because of new cars that do not have the gain that we had in the global industry in recent years. But I see no concern, quite the opposite, we are growing the fleet with even better returns. Consolidated we had 8.4% a year, an increase of 0.3 p.p. compared to the 4Q due to the largest share of GTF in our total mix.

Now I am going to turn to Camila, our IR Officer, to present our business units. Camila?

Camila Silva:

Thanks, Gustavo. Good morning, everyone. Now I am going to talk about the results per business line, starting with slide 12 in the Rent-a-Car with our operating highlights. The priority of the segment for the quarter continues to be fleet optimization, increasing our marginal profitability. Therefore, we had, again, a decrease in the fleet this quarter and getting at 90,000 cars, a drop of 10% year-on-year. In the same period, we had a 3% increase in the operating fleet, improving our gains in efficiency. Daily rates reached R$123, a 7% increase year-on-year and a slight decrease of 2% compared to the 1Q, with high seasonality.

In the bottom part of the slide, we have the evolution of our total occupancy indicators. We continue to see an important gain in productivity in the total occupancy rate, our main indicator. The evolution was 6 p.p. compared to the 2Q22, reaching 70.7% compared to the 1Q23, expansion of 1.4 p.p. The operating occupancy rate was stable in the period.

Now on slide 13, we show the financial highlights for the Rent-a-Car segment. Net revenue, R$676 million in the 2Q23, growth of 15% year-on-year. In 1H23, growth was 21%, reaching R$1.4 billion. Growth in those periods shows the new operating scale of the Company as a result of the transformation of our ticket and optimization of pricing in the different categories of the segment. As a result, revenue per car followed the increase, showing growth of more than 10%, both in the quarter and in the half year. EBITDA in the 2Q was R$382 million, practically in line with last year. In the half year, we had growth of 7%, reaching R$809 million.

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On slide 15, we bring the operating indicators for fleet management and outsourcing, which is our long-term project. The first chart, total fleet, 113,700 cars in June 2023, 7% up in a year and a slight drop compared to the 1Q, as I mentioned before. It's important to highlight that as in the Rent-a-Car, there was even more expansion in the operating fleet, 16% quarter-on-quarter, showing better use of capital invested and generating a volume of daily rate of R$9.2 billion in the quarter. Our revenue backlog is R$3.3 billion, 40% above last year and 26% quarter-on-quarter.

On slide 16, we have the financial indicators of GTF. We continue accelerating expansion, with net revenue reaching R$558 million in the 2Q23, an increase of 34% compared to the 2Q22. In the half year, we had R$1.1 billion, 38% year-on-year growth. In addition to increasing volumes, we had a substantial increase in revenue per car, 16% in the quarter and 21% in the half year, reaching 2Q23 an average of R$2,110 per month.

EBITDA in the 2Q was R$412 million, an expansion of 31% compared to the 2Q22. In the half year, R$773 million, 29% year-on-year. A comparison of EBITDA per car in the final chart also shows evolution. The strategy is to continue with accelerated growth in GTF in revenue and EBITDA, with more resilience and predictability to consolidated results.

Used car sales. On slide 18, we show the main highlights of operations. In the quarter, we had a 2% increase in the volume of cars sold, with stable sales at 19,000 cars. In the half year, growth was 14%. Net revenue in used car sales had light growth in the quarter, R$1.2 billion, an expansion of 23% on the half year with a total of R$2.7 billion. The result of the half year was impacted by the sale of a mix with a higher ticket. The EBITDA margin of 7.7% in the quarter shows the conservative policy we have in depreciation rates. The drop compared in the half year is expected due to the normalization of the market that was atypical in 2022.

We opened 4 new points of sale in the 2Q that will contribute to better performance with now 94 stores at the end of June.

Now I am going to turn to Pedro to continue the presentation. Thank you.

Pedro de Almeida:

Thanks, Camila. Now we are going to slide 20, where I talk about our capital structure. I start highlighting the reduction of R$3.7 billion in gross debt this quarter going from R$17,6 billion to R$14 billion in the 2Q23, mainly due to the prepayment of local debt and bonds abroad. In addition, we had a reduction in the purchase of cars, so we decreased the supplier line by R$1.3 billion.

With that, we had a reduction of more than R$700 million when we add net debt and the supplier line compared to the 4Q last year. This effort was important to keep the leverage stable in a healthy level of 2.9x net debt to EBITDA ratio.

Now on slide 21, we have our cash and our debt maturities schedule. We have a very strong cash position, R$2.6 billion in June 2023 enough to cover our debt until mid-2025. As you can see in this chart, the prepayment of debt we had of R$3.3 billion in the quarter was also taking into consideration the improvement of the debt maturity profile, eliminating the maturities of the next 2 years, leaving the Company extremely well-

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