Edited Transcript of PARC3.SA earnings conference call or presentation 8-May-20 2:00pm GMT

After the first month of the year, like the rest of the global market, we were hit by the COVID-19 crisis, an unprecedented situation in our generation that will possibly put to test companies and entire sectors of the economy, determining the need for companies to change their strategic drivers. And while this is the reality, we believe that the transformation Wiz has been through in the past years, as I briefly recap, has turned us flexible to respond to those challenges with agility and keep focused on our strategic — or strategies that we believe to be successful.

We are present across the country with employees in over 400 cities of the country, operating in 1 of our 8 business and corporate units. We are just a small part of the country, mixing regional culture, accents, but with a powerful point in common, our Wiz culture. One of its main pillars is valuing our employees. Therefore, since the beginning of this crisis, the company’s main concern was the health and care of our 2,300 employees with the slogan “Taking care of Wizzers” so that they can take care of Wiz. We implemented several measures to ensure continued operations with safety. Almost every employee is working remotely. We adopted measures focused on the social well-being of our employees in addition to psychological support, lectures and training to help them work from their homes as productively and healthy as possible.

On April 14, we sent a notice to the market giving details of the measures the company is taking. This is why I’m not going to dwell on them. These measures were positively welcomed by employees, shareholders and clients, clearly indicating we were taking the right direction. The success of these measures align with our ongoing effective strategy, makes us confident that the company can face the impact caused by the COVID-19 pandemic. In addition, the characteristics of assets like insurance brokerage and the background of our company indicate the solid ability in generating cash, combined with considerable predictability of revenue in the middle and long term. We will certainly be impacted this year, but we are confident that we will be fine and stronger at the end of this process.

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Guilherme Aguiar, [3]

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Thank you, Heverton. Good morning, everyone. I’ll start the presentation of the financial aspects on Slide #3. I will talk about the events and highlights of the first quarter.

I would like to start by commenting on the impact of COVID-19 pandemic in our operations. As Heverton said earlier, the actions implemented by Wiz in the face of this crisis are intended not only to safeguard our clients’ portfolio and the company’s financial results but also to play a social role, giving priority to protecting the health of our employees and the maintenance of their jobs. In this sense, we remain committed to these goals, developing care actions for our teams and monitoring the company’s financial situation. I would like to note that we have given details throughout our earnings release on these impacts on each of our units. I can say there is a greatest variation, especially in performance, at the end of the quarter in the second half of March in new sales.

Now talking about Wiz Conseg. We highlight that after the acquisition of Barigui Corretora, this quarter, we started to consolidate the results of this new Wiz business unit. In the first quarter of ’19, Wiz Conseg had 16,300 vehicles in this portfolio and added BRL 500,000 to the group’s gross revenue. This result refers only to the unit’s production of March when we started to consolidate the results.

Finally, we would like to highlight the launch of Wiz Corporate Partners, a new line of operation for our Wiz Corporate business unit. Partners was designed to work with corporate clients considered complex and in need of tailor-made insurance. With the creation of this branch, Wiz Corporate becomes more prepared to provide a sophisticated corporate service focused on large customers and on high-risk insurance. The professionals who joined the Wiz team to lead this initiative have extensive experience in specific economic factors or in the corporate insurance market. In the first quarter of operation, Wiz Corporate Partners has already added BRL 1.5 million in gross revenue to the group’s results.

Now moving on to Slide 4, the summary of results. We highlight here our gross revenue, which grew 10% compared to the last year, reaching BRL 205.3 million in the quarter, even with a less productive March in March compared to the first quarter of ’19. This result is partially offset by the other income and expenses line, where last year, we recorded nonrecurring income impacting the comparison with that year. As a result, we ended the quarter reaching an EBITDA of BRL 87.8 million. It was 10.7% lower than Q1 of ’19 with a net profit of BRL 51 million, 9.9% lower than the same quarter last year.

Okay. Now moving to Slide #5. We see the effects considered for our adjusted fees. In EBITDA, we adjusted in the first quarter of ’19 the nonrecurring revenue that I mentioned earlier. And in this quarter, we adjusted a tax recovery recognized in the period. In the second table on net income, we adjusted some effects resulting from the acquisitions made by the company in recent years as well as the effects that impacted EBITDA adjusted to net value. These adjustments are explained in detail in the earnings release document. Therefore, we ended the quarter with an adjusted net income of BRL 56.2 million, a result 1.9% above that achieved in the same period of 2019.

Moving on to Slide #6 to detail the gross revenue results per business unit. This quarter’s revenue was driven mainly by the evolution in bancassurance operation, which grew 8% compared to the first quarter of ’19, driven by the performance of the life and lending product, Prestamista. In addition, we also observed a good performance in the Wiz BPO unit with BRL 25.8 million gross revenue in the period compared to the first quarter of ’19 in the Wiz Corporate unit, which showed a growth of 25.6%, adding BRL 12.6 million (sic) [BRL 12.5 million] in gross revenue. Also, as I mentioned earlier, as of this quarter, we consolidated the revenue from the new Wiz Conseg unit.

Speaking of the impact of the COVID-19 pandemic in our revenue, we highlight in our earnings release the drop in productivity in our business unit as of March. On average, our productivity per working day in that month is 15.5% lower than in March 2019 due to the reduction in the origination of new sales in the second half of March 2020. With regard to the unit share of the company’s total gross revenue, this quarter had a decrease of 1.3 percentage points in the share of the bancassurance unit in the company’s overall results, which is offset by the increased relevance of Wiz BPO.

Finally, our revenue stocks represented 41.2% of the company’s total revenue this quarter, a result 3 percentage points lower than the first quarter of ’19, influenced by the relevance of the revenues of Wiz BPO unit, whose revenues are classified as new sales, and the growth in the building of the Prestamista product, the lending product, which does not generate revenue stock.

Moving on. On Slide #7, we are going to talk about our costs. In the first quarter of 2020, our costs grew by 14.4% when compared to the same period of the previous year. This result is mainly due to the consolidation of our Wiz BPO unit throughout 2019, reflecting an increase in costs of headcount and infrastructure and the incorporation of the cost of GR1D Finance and GR1D Insurance, which we started to deconsolidate in the month of December 2019.

Let’s talk now on Slide 8 about our expenses. General and administrative expenses grew 30.5% in this quarter when compared to the first quarter of 2019. The main highlights in the quarter are the increase in personnel expenses due to the increase in headcounts allocated in the marketing and technology area to support the company’s new business units and the strategy of expansion and diversification of operations. In addition, we posted a 138.1% growth in the third-party services line due to the hiring of advisers and consulting services to support the development of strategic projects. In the other income expenses line, we totaled a negative result of BRL 3.3 million in the quarter due to a worsening in the result of intermediation of payment as well as the occurrence of successive expenses to lawyers in tax recovery projects.

Moving on to Slide 9. We present the equivalent results obtained in the Inter Seguros operations. In this quarter, we highlight the sharp growth in customer portfolio, which reached 75,700 insured customers, a growth of more than 130% over the same period last year. This performance as well as the 39.5% growth in the net premium reflects the maturity of the sales strategy for digital products and increasing the representativeness of these products in the portfolio of Inter Seguros, diversifying the sources of revenue.

In the first quarter of 2020, the operation achieved a growth of 42.8% in gross revenue, with emphasis on the performance of digital product, especially Protective Credit product in payroll-deductible loans. In net income, Inter Seguros showed a growth of 49% in relation to the same period of the previous year. This result is due to the growth presented in revenue, which, in turn, compensate and set off with the investments given — made in technology and personnel. Finally, this result added BRL 1.6 million, to this result in the first quarter of 2020 for the equity method of 40% stake that we’re holding in Inter Seguros.

Slide #10 presents the composition of net income. In earn-out and impairment in the quarter, we reported BRL 0.5 million related to the first installment of the earn-out provided for — in the association that’s been established with the partners of Comp Line Informática in December 2018. In the financial result line, we had lower performance than the same period of the previous year, mainly impacted by the increase in expenses for adjustment to present value and monetary adjustments of future installments of costs related to the acquisitions made by the company.

Finally, we move to Slide 18 — 11. The main changes that impacted the company’s cash flow in this quarter were in the working capital and investment line. In working capital, the variation of BRL 6.6 million is mainly due to the increase in the balance of company’s tax liabilities due to the change in the method of calculating IR, CSLL income tax for the quarterly period. In investments, we disbursed BRL 7 million, referring to the 6 installments provided for in the contract for the acquisition of 76% of the share capital of Barigui Corretora de Seguros and BRL 0.5 million referring to the first installment of the earn-out provided for in the acquisition agreement with the partners of Comp Line Informática. These amounts were partially offset by positive effects generated in the cash flow resulting from the accounting of the adjustment to present value and monetary update of the acquisitions made by the company.

Therefore, this concludes the presentation of results. I would like to turn over to Heverton, who will start the question-and-answer session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First caller is Marco Calvi from Itaú BBA.

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Marco Calvi, Itaú Corretora de Valores S.A., Research Division – Research Analyst [2]

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I have some questions on our side. First about bancassurance. I know that you have felt the effects and — that lowered the productivity in the sales of insurance like life insurance and lending insurance. Do we have any idea how our April month looks like? Just to establish a parallel of that effect along the month of April. That’s my first question.

Second question is about the BPO unit. You mentioned that due to the nature of the business it was not affected by the pandemic. And what about the rest of the year? Should we expect a neutral effect on it? Will we feel the measures of the quarantine? Will that have an impact on that?

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Heverton Pessoa de Melo Peixoto, Wiz Soluções e Corretagem de Seguros S.A. – CEO, Member of Executive Board & IR Officer [3]

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(inaudible) Well, regarding your question, first, related to the month of April. What we can say at this point is that the effect was higher in the last month of March because we had to move our employees from the office. This is why we mentioned the amount for March. In the beginning of April, we have suspended some of the — their contracts, but the impact of moving or removing employees, this has led to a different volume of people. And also, there was an impact on the offer of secondary products. That has had a significant impact in the last quarter of the — on the last half month of the quarter. So January and February were, of course, weak. That’s common. Also because it was Carnival in February, so we started feeling this impact more in March.

What we can share with you is that this impact tends to persist in other areas because of the variables I mentioned before. We expect to feel that in April and the beginning of May. What I can say at this point is that our bancassurance operation is more recent, and its revenue structure makes the new revenue to originate future revenues. So that has a matter of cost. And of course, by that, we have future clients, and that loosens the blow that we are having during this period.

Now talking about the new — 8 business units. Of course, they were not as exposed to these factors, but saying that these units will not feel this impact is not true. You mentioned BPO. A major part of the BPO revenue has to do with portfolio. So there are some features related to the consortium operations that also depend on delivering an asset. We want to have an consortium letter to purchase a real estate property or a vehicle. We depend on that, and this is why they are more affected. We expect to have impacts across the country and across every new sales and also factors that affect BPO, too. There are some operations that involve processing of new sales. I don’t know if my question — my answer is clear to you.

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Marco Calvi, Itaú Corretora de Valores S.A., Research Division – Research Analyst [4]

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Yes. It was.

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Operator [5]

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(Operator Instructions) This concludes today’s question-and-answer session. I would like to turn over to Heverton Peixoto for his closing remarks. Please go ahead, sir.

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Heverton Pessoa de Melo Peixoto, Wiz Soluções e Corretagem de Seguros S.A. – CEO, Member of Executive Board & IR Officer [6]

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I would like to thank you for participating in our conference call. This is — these are difficult times for everyone and also for Wiz, but I’m sure that it will bring positive things, too. Although we had impacts in our revenue, we see that our team is highly committed. The efforts that we made in the last 24 months has really paid. This is why we see good results and more contribution for business units that we’re starting to witness, and we could also see how passionate our team is for their work. We have very solid capital, reworked leverage and the fact that our revenue is the result of direct sales indicate that we will overcome these difficult times. In that sense, maybe more fortunate than the competition, and I’m sure we’ll be able to implement our project. We are dedicating ourselves to be the partner we want to be to our clients so that our clients can also overcome these times. We want to work closely with them. We want to work solidly so that we can overcome all these challenges.

Thank you very much. I wish you peace and health to you and to your family. And take care, similar to how we have been taking care of our employees. Thank you.

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Operator [7]

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This concludes this conference call for today. Thank you very much for your participation, and have a nice day.

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