CSU Digital SA

BOVESPA:CSUD3

Earnings Call Transcript

[José Leoni, executive]

Good morning, everybody, and welcome to this video conference of CSU Card System 1Q 2022 results. I am José Leoni, RI Director (sic) [IR Director], and take questions platform on the chat and then I pass the microphone to Guilherme starting up the presentation from Slide #2. Thank you so much.

[Guilherme Vieira, executive]

Thank you, Leoni. Good morning, everybody. It's a great pleasure to be here sharing the results today. Starting this session, I would like to highlight that '22 exactly we embed our digital journey, generating value throughout time. And this, in fact, is leveraging our commercial performance, that's satisfactory with the perspective of growth throughout time. And in this vertical, it's important to highlight new businesses like OLX6, OLX Banese, Rodobens and 5 contract renewals that we had naturally especially in the unit of CX in the beginning of the year. This movement is very strong, and we also have more clients about to implement and the main disclosure will be done after the launch because of these clients, so we do not breach the commercial clauses.

So this has become more and more frequent. And that is a reflection of this higher commercial vitality and this vitality is due because of the digital journey materializing this extreme digital journey that we highlight in the center of the graph. So, we take electronic translation push to the limit of digital efficiency, further revolutionizing the experiencing.

As a result of this journey, we have the digital convergence of coins, wallets, flags, integrated not seamless. I believe you experienced more complexity in this environment. And then as a result of the value generation and this strategy, the expansion on the earnings enabled to be focused on the value generation to the investor and we deliberated in the first quarter of this year, the BRL 4 million via IOC, 43% growth compared to the same period last year. And then I want to highlight the result. Do we see the top line elevation, 6.4% net revenue growth with special attention to the higher expansion in the business unit card system payments that is, in reality, a priority in the company, highlighting as well, the increase of recurring revenue in the period that is still bringing predictability on results that is beneficial to our stakeholders for the company, shareholders, predictability over 98% and high resilience as well facing the challenges -- external challenges that we always see.

And then next, in addition to the top line growth, we also registered a meaningful expansion of the result lines that are also the frequent every quarter when we talk about it. This is the fruit of a positive operational leverage and our higher result that all the services focus on digitalization brings with an expansion of EBITDA 9.3%, EBITDA margin almost 30%, already 29.8%.

Net income with a growth over 20%, reaching almost 12% of net margin and BRL v15.5 million as the result in the quarter compared to the same period last year. These results are really satisfactory. Fruit of this winning strategy, focus on service digitalization and I pass the microphone back to Leoni, so he can dive the results of our business units.

[José Leoni, executive]

That's perfect, Guilherme. Thank you so much. And now Slide #5. We have card system. And then we presented an evolution of 9% of net revenue compared to year after year '21 and '22. And I would like to highlight the digital service revenues growing 2x, double. So we have 18% growth of digital services. This process is ongoing for a while in the company. We may make different releases of results and digitalization of the revenue in the unit is over 85%, so this is scalable. It's leverage for the operation that is very meaningful. And then here, we presented an evolution of gross profit with a new record new growing 25% in the same period with a gross margin over 53%. So it's a very healthy business growing from the digital initiatives, delivering profitability.

Now, seeing through next slide, that is #6, deep diving the operational indicators of the unit with a meaningful evolution in the main metrics. Number of process transactions in millions almost reaching 200 million transactions processed in the quarter. The credit cards registered over BRL 31 million with the growth in all the customers in this unit and financial volume representing almost 30% growth if we compared the same period to reaching volumetry of BRL 250 billion yearly. So all the indicators going up in a positive way.

Passing through next Slide #7. We see our customer experience unit, CSU.Contact in the net revenue in 4% and evolution on gross profit of 5% compared year after year. And here, I would like to highlight the first quarter normally is more challenging for this business unit, that is when we have the renegotiations in the contract and the renewals. Guilherme has just mentioned it, that we were successful in different renewals of this business unit. So the performance is also positive, but the company, as I mentioned, is focused on digital initiatives and also in payment division ability.

Next Slide #8. And here, we have some operational indicators of that unit, starting on the left-hand side, build work stations more than 2,800 positions, gross profit by revenue is dropping because of home office. We had mentioned this before, home office operation. We have the occupational rate is under the average, but the profitability of the company, we keep it over 15% of gross margin for the unit.

That was it on the results. The chat is open if you have questions. And I give the floor back to Guilherme to keep on explaining this presentation.

[Guilherme Vieira, executive]

Thank you, Leoni. Keep on the presentation talking about the capital structure and operational cash generation is a highlight over BRL 34 million and responsible for the growth of reserve expanding the gross cash in almost 19% compared to 1Q '21 and keeping the same level of 4Q '21, BRL 83 million. The gross debt is dropping almost 15% compared to 1Q '21, a little bit of elevation because of the revision of the leasing contracts according to the IFRS 16 and it's worth highlighting that the net debt is dropping in BRL 27 million, less than 1/3 of total gross debt.

And curiously, when we call this gross debt and EBITDA in the period, it is almost BRL 40 million, we see how comfortable the structure is on debt, especially when we talk about gross debt. The leverage is very low, 0.2x the EBITDA. And this enabled this cash generation every quarter in the level that is very high quarter after quarter. We can see an elevation of the investment levels of the company, reaching a CapEx of BRL 12 million in the CapEx, 25% growth compared to the first -- Q1 '21 because of the continuing structure of Blue C and the software customization for payment is the evolution of digital solution is here, materializing this CapEx.

And at the same time, we can distribute these according to BRL 4 million in IOC for the 1 quarter '22. And in 2021, we distributed in earnings BRL 20.2 million (sic) [ BRL 30.2 million ] in earnings, a payout of 50%, part of this BRL 14 million paid in January, [ JCP ] and BRL 16.2 million paid now in May after April. And then, again, the company is presenting a cash generation that is outstanding, enabling this focus so high in the solution development more and more in the leadership of digital solutions in the payment market.

And then next chart, we would like to conclude, highlighting that the first quarter was very important to establish the strategic baseline for digital growth, generating results in all the aspects, but this quarter was really important for the investments in the baseline for future growth through commercial drive, prioritizing digital economy and also the solutions that we call Extreme Digital Solutions responsible for this convergence of solutions through a digital that is also a solution that you have the plastic card traditionally. It doesn't matter the flag that the customer works MasterCard, [ AMEX ], Visa within the credit article system, you can through a solution part of the market wallet.

You can have a product, a credit card, a prepaid card totally independent, totally digital that works in physical and also in the Web independently of the flag that you work that the client has. And at the same time, solutions such as pix, CSU installments, so we can converge the solutions in the credit card solutions and also SPI ecosystem transforming a transaction that is cash on pix into an instrument of installments, credit already available to clients up to solutions that are digital, wallet, managing the approximation, 100% digital on-boarding. And for the future, the future is more and more integrated with crypto, the ecosystem of credit cards and also digital accounts.

So briefing out, a quarter that was so busy with different solutions built up and taken to our customers to leave the -- of the [ ASM ] card of the breakthrough of the market.

We would like to thank you so much for your attendance, for following up our results and our work and highlight the reliability that we have in the future that is going to be to pick up fruits that are more and more meaningful from these initiatives that the company has been doing. Thank you so much, and we open up the floor now for the Q&A session. Leoni, please.

[José Leoni, executive]

We are going to receive the questions on chat. exclusively, the chat is open for you. Let's wait for a while until we get all the questions. [ Santiago ] is asking who takes the risk of crediting installment pix? Thank you, [ Santiago ]. Guilherme, can you talk about it? Thank you.

[Guilherme Vieira, executive]

Yes. Yes, I can. The credit risk, CSU is a company that provides services. So we make available the technology to customers that could be credit card insurers and also eventually digital account holders. The risk of credit is always the customers in the case of this installment pix that gathers the ecosystem of SPI and credit cards. The risk in this case is the issuer. Eventually, it could be the establishment that has this installment transaction in purchase, could be an issuer or a retailer. So the credit risk in this case is the customer's and the customer's always. Thank you so much. Important question.

[José Leoni, executive]

Perfect. So questions on chat, feel free and let's answer them all as they are coming up. Let's see if we have more questions, just one more second. I believe there is no more questions. Guilherme, please if you can have your final considerations now, feel free.

[Guilherme Vieira, executive]

Thank you all so much for your participation. As we comment the company is building the foundations for future growth that in solutions that are digital and in convergence among different modalities of space, making it seamless, a reality that is really complex here in our daily activities of all the companies dealing with different ecosystems.

And this brings reliability. This strategy is fruitful, enabling vitality, commercial vitality that is higher. And at the same time, we keep a strategy that is conservative and save about the leveraging topics based on the challenges we have in 2022 in external scenario and also because of the inflation and the challenges of presidential election throughout this year.

Anyway, it doesn't matter the scenario we face, the company is ready to face it all and more than that, ready to grow even in a scenario like this one. I'd like to thank you so much, and we are here at your service, our area of RI (sic) [IR]. If you have questions or comments, we are here for you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]