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Edited Transcript of CIEL3.SA earnings conference call or presentation 30-Oct-19 4:00pm GMT

Q3 2019 Cielo SA Earnings Call

Boulogne Billancourt Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Cielo SA earnings conference call or presentation Wednesday, October 30, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gustavo Henrique Santos de Sousa

Cielo S.A. - Executive VP of Finance & IR Officer

* Paulo Rogério Caffarelli

Cielo S.A. - CEO

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Presentation

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Operator [1]

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Good afternoon, everyone, and thank you for waiting. Welcome to the Cielo Third Quarter 2019 Results Conference Call. With us today, we have Mr. Paulo Caffarelli, Gustavo Sousa and Jean Leroy.

This event is being recorded. (Operator Instructions) This event is also being broadcasted live via webcast and may be accessed through Cielo's website where the presentation is also available. Participants may view the slides in order in which they wish. The replay will be available shortly after the event has included. Those following the presentation via the webcast may post their questions on our website. They will be answered by the IR team after the conference is finished.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Cielo management and on information currently available to the company. They involve risks and uncertainties because they can relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to microeconomic (sic) [macroeconomic] conditions, industry and other factors can also result to differ materially from those expressed in such forward-looking statements.

Now we'll turn the conference over to Mr. Paulo Caffarelli. Mr. Paulo, you may begin.

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Paulo Rogério Caffarelli, Cielo S.A. - CEO [2]

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Good afternoon. Thank you, guys, for your time and attention. I'd like to briefly highlight some key aspects of the third quarter as consequence of Cielo's yearly strategy so far.

Firstly, we are very proud of the results in terms of market share, customer base expansion and volume, confirming that the third quarter is aligned to the -- our plan. Moving to quality of services, it's worth mentioning that all the effort dedicated year-to-date has brought more quality toward our service. However, we keep in working hard on improving this level to excellence. Moreover, we remain focused on business as usual, but in parallel, we are creating a new Cielo into a digital transformation. Cielo Pay is one of the example on this new platform. We are innovating our ecosystem to provide and please user with more experience and convenience.

And finally, as the leader of this market, Cielo is able to scale up the business as well as take the competitive advantage of a leader. My special thanks to all Cielo's staff that are involved in this challenge for transforming and adapt our company every day, and also our investors who support our efforts.

This quarter, we are presenting again good results in terms of market share, volume and customers base's -- customer base's expansion. And we believe that we are in the right way because, when we decided to remain in this competition, we decided to jump [from March] to preserve market share. And we are in the right way, okay?

Now I will pass to Gustavo, and after that, we can return for the Q&A. Thank you so much.

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Gustavo Henrique Santos de Sousa, Cielo S.A. - Executive VP of Finance & IR Officer [3]

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Thank you, Caffarelli. Good afternoon, everyone. Thank you for participating in our earnings call.

So let's start the presentation on Slide 3, where I'll go through 5 metrics without giving out details because I'll talk about those details in the upcoming slides.

So starting with financial volume of the quarter, BRL 172 billion. In terms of client base, we reached 1.5 million active clients. Our credit volume that was paid in 2 days reached BRL 22.3 billion. Net revenue of BRL 2.8 billion and a net income of BRL 358 million.

Moving to Page 4 and now looking at financial volume. This volume of BRL 172 billion represents a yearly growth of 11.6% and a quarterly growth of 4.4%. The active client base that reached BRL 1.5 million -- I'm sorry, 1.5 million clients is a 18.9% growth and a -- year-over-year and a quarterly growth of 4.7%. And the total credit volume paid in 2 days of BRL 22.3 billion represents a 43.6% yearly growth and a record-high penetration of 21.3%.

Moving to Page 5. I will briefly -- through some of our financial metrics. Net operating income of BRL 2.8 billion, and that's a 5.5% reduction. EBITDA of BRL 724 million and that's a 37% reduction. Our EBITDA margin reached 25.9%, and that's a 13 percentage points decline, and a net income of BRL 358 million.

On Page 6, we explain the majority of the reduction in most of these metrics come from the competitive landscape that we are facing. So we saw an important decrease in revenue yield, most importantly related to reductions in prices. So starting with the graph on our left, where we see our revenue yield decreasing by 26 bps, and most of this reduction from price in MDRs and also a reduction from rentals which is also a price component. And the same thing is seen on the quarterly comparison, the 7 bps reduction in revenue yields driven mostly by reductions in MDRs, that's the price column over there, and also in rental revenue.

On Page 7, we see some of the items that we will discuss in the upcoming slides. We'll talk about the Retail segment, about the Entrepreneurs segment, also about advances in technology and projects, also advances in operations and service and specifically about a recently launched product called Cielo Pay.

So on Page 8, we start with a graph that we also saw in our last earnings call. This graph demonstrates the yearly growth of the addition of 2 segments, Retail and Entrepreneurs. So just to give more color: Entrepreneurs for Cielo is a segment of clients with a yearly flow, a yearly volume of BRL 120,000. And the Retail is clients between BRL 120,000 and BRL 15 million. Above that, we have the Large Accounts.

So in the third quarter, we saw the combination of Retail and Entrepreneurs expand at a faster pace than we saw the Large Accounts. Behind this expansion, we have a strong result from the -- our recently created workforce of hunters. As the market knows, we announced the creation of this workforce in January this year. We have 1,000 employees fully dedicated to adding clients to Cielo, most importantly in the Retail segment. So first of all, in the third quarter, the hunters, the volume generated by clients that were brought to Cielo by hunters, they represented close to 10% of the Retail volume. And if we compare the volume brought by hunters from the third quarter to the second quarter, we have this 81% increase, demonstrating that our hunter effort is gaining traction.

When we go to Slide 9. We have some comments about our strategy for Entrepreneurs. It's a strategy mostly based on the sale of equipment. Since we started with this strategy early last year, until today, we sold close to 1.1 million POSes. Part of this was equipment that was instantly delivered, was prompt delivered -- delivery in the branches of the banks that work with Cielo. 130,000 of those equipments were instantaneously delivered by clients, and this is a strong growth compared to other peers and demonstrates how ready Cielo is to face distribution and reaching out to clients in this segment.

We also show alternatives to expand sales of our clients of this segment, such as payments via QR code or by links. We also offer to the segments the possibility of digital accounts. Today, 9% of our Entrepreneur clients have a digital account with Cielo. And for the future, we are planning to diversify distribution by working with partnerships and other types, other forms of sales efforts to keep increasing our presence on these segments.

Moving to Page 10. And it is important when we talk about technology in Cielo because the market has a view that incumbents have issues and problems related to legacy systems. So first of all, of course, players that are established in the market for a longer period, yes, they do have legacy systems, but there's another side of this coin, which is nobody has systems availability and capacity as Cielo has. So we have availability of close to 100%. Of course, it's impossible to have 100%, so it's 99.99%. We have a financial volume between BRL 2 billion to BRL 5 billion on a daily basis, BRL 7 billion in transactions -- 7 billion transactions on a yearly basis and also peaks of transactions of over 1,000 transactions per second. So Cielo is ready to face any of the heated periods in the economy; or the seasonal increases in sales related to Mother's Day, Father's Day and Christmas. So nobody has close to the availability and capacity that Cielo has.

And when we contrast that to new technologies, recently over the last 2 years, Cielo starts to implement every coding language and platform available in the market. Cielo uses that. Currently, 90% of our project portfolio is done implementing the agile methodology. We saw a radical improvement in terms of productivity, which allows Cielo to deliver solutions to the market in a shortened period. We have 3 examples here. Our digital account was developed and implemented in less than 100 days; the Cielo Pay that we will talk about in the upcoming slides, also in less than 100 days; and the instant payments solution in less than 60 days.

Now shifting our attention to operations and service, we move to Page 11, where I believe we talked about this new method, this new way to manage our call center in the last earnings call. Basically, our call center operators now, starting in October, have a new rule where, based on the evaluation of the quality of that call in the -- aggregating information from different periods, the call center providers can get more or less volume from Cielo and, depending on the quality, also to get paid more or less on the base rates, always depending on how the clients evaluates that service. We started to have the first results of an initiative that we had, and we were very vocal in announcing that to the market as the core of our strategy for this year, which is to put the client first in every initiative that we do. So with this priority to evolve in terms of quality service, we will start to share the first metrics of that with the market. So what we have in this slide here is just the beginning.

So we had a reduction in the calls from active clients by 18% on a yearly basis. We had a reduction in complaints of 15%, also in a yearly basis. And also, the time it takes for Cielo to solve those complaints reduced by 74% on a yearly basis.

Finalizing the presentation on Slide 12, we talk about Cielo Pay, a product that was recently launched. We have the possibility of digital wallets with physical and virtual cards; QR code payments; transfers, instant transfers, based on the contacts that you have on your phone. So a product that is now ready for our clients and that will keep evolving, and we'll keep sharing the developments and implementations in these products with the market in the upcoming quarters.

With that, we finalize the presentation, and we move to the Q&A session. Thank you very much.

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Operator [4]

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(Operator Instructions) This concludes today's question-and-answer session. I would like to invite Mr. Paulo Caffarelli to proceed with closing remarks. Please go ahead, sir.

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Paulo Rogério Caffarelli, Cielo S.A. - CEO [5]

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So guys, thank you all for taking part of this conference. My RI team and me, we are very available to answer and to clarify doubts. Please do not hesitate to contact us if you do -- if you need something, okay?

Thank you so much, and have a good evening. Thank you. Bye-bye.

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Operator [6]

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The conference -- this concludes Cielo's conference call for today. Thank you very much for your participation and have a great day.