Hello. Good morning, and welcome to Intelbras' 4Q 2022 Earnings Call.

My name is Bruno Teixeira. I am the Head of Investor Relations.

With me today are Mr. Altair Silvestri, CEO; Rafael Boeing, CFO; Paulo Correa, also Henrique Fernandez; and Marcio Ferreira.

I would like to inform you that this earnings call is being recorded and will be available at the company Investor Relations website where you can also find the presentation, the PPT presentation.

[Operator Instructions] I would like to inform you that the information contained in the presentation and any statements that may be made during the conference call about the business perspectives, projections as well as operating and financial targets for Intelbras are based on the beliefs and assumptions of the company's management and also on currently available information. Forward-looking statements are not guarantee of performance.

They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur.

Investors should understand that general economic and market conditions as well as other operating factors may affect the future of Intelbras and lead to results that differ materially from those expressed in such forward-looking statements. So after the initial remarks, I would like to start the presentation, and then we are going to open the floor for questions.

We are here today to present excellent results for the fourth quarter of 2022 with growing revenues and net income. Our net revenue came to over BRL 1.2 billion, 34.3%, higher year-on-year with an EBITDA of BRL 160 million with a higher growth than our net revenue at 38.4% and our net income skyrocketed supported by our operating results and also our strong diligence from the tax department when it comes to income tax and also this quarter, we had financial revenues with a positive foreign exchange rate.

And our ROIC is now closer to 30% with 26.4% and almost 1 percentage point higher year-on-year. You can see our track record.

The company has been growing since 2017, as you can see, at a CAGR of 26.7% per year, reaching BRL 4.2 billion in 2022. If you look at our growth in the fourth quarter alone, you are going to see that we reached 34.3% growth year-on-year.

You can also see our EBITDA CAGR with 22.3% since 2017, and our growth this year was 32.2% year-on-year. Here, you can see the evolution of our EBITDA since the 4Q 2021 to 4Q 2022.

You can see that the expenses are not growing at the same proportion as our revenue.

As a consequence, you can see that our EBITDA margin has grown. If you look at the full year 2022, our EBITDA margin was 12.6%.

As relevant as the margin for the full year, I would like to highlight the fact that our operating efficiency was very strong throughout the year, although there was a very relevant acquisition. And we knew that the contribution in terms of EBITDA at that moment was not so high.

But throughout the year, we were able to keep our operating results within the expected ranges. Now let's talk about the different segments for security with 44% of our revenue.

Our comparison base here is stronger. If you look at the 4Q 2021 results.

For those who have been with us for longer, you might remember that from the third quarter to the fourth quarter in 2021, we had repressed revenue and that led to a stronger base in 4Q '21. And if we compare those numbers to the current numbers 4Q 2022, the growth was not so high, but it is in line with our expectations.

All business lines in security have been growing. And the main highlight is still solutions and projects, which have grown this year.

and they still are posting very significant results. And this is a very important avenue, growth avenue for us, and it should continue to be so over the coming years.

Now communication. It was a tougher year.

We are delivering a decreasing revenue year-on-year, but we are increasing in terms of gross income and gross margin. And this is something we have been saying since the beginning of the year because of a more complex market situation, we are coming from a very strong year.

Actually, the past 2 years were very strong, 2020 and 2021. And we didn't have any expectation for growth in the beginning of the year, and we wanted to concentrate on delivering results.

And this is a good reference. Even though we had lower revenues, our gross profit was higher, and that is very important for us.

Communication accounted for 17% of our revenues in 4Q 2022. And we have interesting perspectives for 2023.

We have already started 5G CPE sales in December last year, and we can see demand growing in some product categories that are in line with corporate demands. So everything that we put together and structured throughout 2022, we are going to reap the benefits of that in 2023.

And the last segment is energy with 39% of our revenues. You can see a very significant growth we are posting the Renovigi revenues here, which was acquired in May 2022.

And indeed, this was a very busy quarter. The photovoltaic generators are in high demand, and that was expected.

And we were able to accelerate the revenues this quarter. The result was a very good gross profit contribution in our organic operation and also in Renovigi's operation.

And we are going to see more details of that over the next slide.

So we were able to keep prices. We worked on decreasing costs and using our operating efficiency and the result of that can be seen in our gross margins.

In 4Q '22, we launched the mid power UPS product line, which has been in very high demand in the Energy segment, not in the Solar Energy segment. And we believe that this line is going to continue to grow and bring interesting revenues throughout next year or 2023.

This is the third quarter where we are reporting Renovigi, and we are breaking the results down into Energy and Renovigi and Total Energy. You can see our increase in gross margin.

You can see that Renovigi's margins went down slightly. But you can see that revenue has been growing consistently in Renovigi's operation.

We needed to restructure that department, that segment because the entire operation needed some structuring. And now that it is structured, we wanted to integrate Renovigi's operations into our sales department.

And as we do that, we can see improvements happening, but there's still a long way to go there.

When it comes to costs, it is important for us to have clarity over the fact that we need to keep our inventory turning. So operating efficiency is critical for us to keep our gross profit within a certain range since we have price volatility.

We have a very -- we had a very good quarter. And in the first quarter of 2023, we want to see margins coming back to the past quarter levels, we don't think the margins will be as high as they were in the fourth quarter 2022.

Now let's talk about inventories. For the company as a whole, during the pandemic in 2020 and 2021, we made the decision to invest funds in inventories to keep some supply chain problems at bay and we didn't want to have any downtime or delivery problems to our customers.

And you can see that the number of inventory days has been decreasing, and we want to be around 120. In the fourth quarter, you can see that it was 137 days.

It is also important to mention that on this chart, you can see an increase in net revenue with a growth rate of 34%, while the inventory level was capped at about 3% in when you compare those numbers to 4Q '21. So when it comes to working capital and operational cycle, you can see that inventories are coming back to the normal levels.

The result of inventories at a normal level is a very strong cash evolution. And you can see on the chart our progress with the cash that we had in September 2022.

And we should also remember that we issued debentures and we raised BRL 500,000 which contributed to taking our cash to around BRL 500 million to BRL 1.5 billion at the end of 2022.

Now let's talk about our CapEx. I would like to highlight that we are resuming the payments for the acquisition of Renovigi.

We were supposed to pay an installment at closing, and we were supposed to resume payments some months after, and we started doing that in September, considering the adjustments that we reported at that time. We are also starting the construction of a warehouse here because of the solar plant that we have in place and the volumes that we have been selling considering the inclusion of Renovigi in our plans.

And this warehouse should be constructed throughout 2023, and we are going to report CapEx related to that. And our maintenance CapEx is at a normal level considering our inventory.

And to finish this part of the presentation, I would like to inform you that we are bringing excellent results. And here, we have some nonfinancial highlights, and we are very proud about them.

The first one is the fact that Intelbras was considered a highly renowned company, and we are the first Brazilian tech company to be recognized as such, considering our values and our brand's strength with the target audience. So we are now recognized as a highly renowned brand, and we are among a very select group.

The second highlight is the result of hard work from our finance and controllership and supply chain departments. We were certified as an authorized economic operator.

We are strategic partners of the Brazilian Internal Revenue Service.

And that means that we are a trustworthy company when it comes to the internal revenue service. And that causes our products to have a better flow at international ports and airports.

So that was another certification that we obtained in the fourth quarter of 2022.

And the third highlight is the biggest acquisition in our history, Renovigi. We are a very relevant company in the solar market now and that contribution -- and that acquisition rather contributed to that achievement.

Lastly, to finish our presentation and move on to the Q&A session, I would like to tell you some more about our perspectives.

Every year, towards the end of the year, we discuss and design a strategic plan for the next 5 years. And that happened in late 2022, of course.

And that plan brings opportunities for growth for all product categories.

We have promising perspectives for all of those categories, and we have been working very hard with a lot of dedication so that every category delivers contributions to our results. In 2023, some businesses were not so relevant in 2022 and but we started to see some revenues coming in from, for example, 5G CPEs and fiber cables and digital signage.

We have a factory in the city of Tubarao in the south of Brazil, and we should expect to see some revenues coming from that factory in 2023.

The operational challenges at Renovigi are making headway, and our focus now is on improving the results, and we have been doing that since late 2022 and now in early 2023. We know that there are many challenges ahead of us in 2023, but we see many opportunities and achievements ahead of us.

With that, I would like to thank you very much for your attention. And I would like to start the Q&A session.

[Operator Instructions] We have the first question coming from Bernardo Guttmann from XP sell side.

Great. I have 2 questions.

The first one is about solar energy. The fourth quarter was very strong, accelerating growth and increasing margins with a very high demand, but prices have not increased.

Do you think that there is room for increasing prices and maybe that can drive margins upwards. And also about margins, I would like to know about the level of activity in the segment for the year, considering volumes and prices?

And the second question is about communications. I would like to know about the demand for 5G CPEs.

When I look at the telco market, it seems to me that the 3 biggest carriers have not launched any specific data plans. Do you think that the movement is within your expectations?

Or should we expect any changes?

Thank you very much for your presence, and thank you very much for submitting your questions. I'm going to touch on the 2 questions at first, and then I'm going to Turn it over to Marcio, our Energy Manager; and Henrique, our communication manager, and they will be able to give you more details.

When it comes to energy, specifically solar energy, I believe that there was a higher demand as expected. And we saw anticipated purchases coming from the customers, and we expected to have a calmer beginning of the year since late 2022 was very busy, and the volumes were actually normal in January.

But now in February, things changed a little bit and the volumes went down even further, but we can see demand growing now, especially considering late February and we also had some problems because of the vacations in the beginning of the year and also rainfall. But after 3 years of pandemic, we believe that especially residential customers, they stopped everything during those 3 years, and hotels were closed down, of course.

So all of that caused our business to stall a little bit.

And in March, we believe that we are going to have a very good month and a very good year after that. I believe that demand should resume to normal levels after March.

And of course, we have a lot of confidence in our brand and our very good sales network. We have everything in place.

We are prepared to tap into that new demand that is going to come back to normal levels. When it comes to communication, especially when it comes to 5G CPE, as Bruno said, we knew that the 3 main carriers wouldn't be so fast in terms of acquiring equipment, they are a bit concerned about the return on their investment when they purchase this kind of equipment.

We can see the corporate department of the biggest telcos, we believe that they want to be -- they want to have redundance of course, and the carriers are making movements towards that direction, but residential consumers are going a bit slower, and that was expected, but we believe that things are going to go back to a faster speed. And Marcio can talk more about energy.

Go ahead, Marcio.

Our resellers used some arguments related to payback to consumers. So what we are telling our resellers is that they should use the arguments that we used in 2019, '20 and '21.

The payback rate is still very good. It is an excellent investment for consumers.

And we reorganized our communication with our team so that we can use that argument as the strongest one in our sales pitch.

When it comes to margin, and I think that my answer will address many of the questions that have been submitted. Our margins will not continue to be the same as for Q, but they are going to be closer to our gross margin in the third Q 2021, that's what we believe we are going to see in the first quarter 2023.

As Altair said, the market is a bit reactive still in the beginning of this year. but we can see a recovery in demand now in February and March, and the market will be more competitive and price oriented.

One of the things that we have been pursuing since 2022 and now in 2023 as well, is operational efficiency with inventories under control. Last year, our inventories were higher, and that made us be held hostage to aggressive price policies.

We are beginning this year at a much better position than in the first Q 2022, and that allows us to learn from our -- from past lessons and to be better prepared. Henrique, would you like to talk some more about communication?

Sure. Thank you very much for the question.

Confirming what Mr. Altair said, what we're doing now, Bernardo to accelerate 5G.

This is a brand-new technology, a brand-new business. And this market actually has to be created from scratch.

And to do that, we are working together with the carriers in terms of building supply, especially in the B2B market. The main carriers have already acquired 5G CPE from us.

They are already using and installing their equipment in some sites. And there's a very significant client that is already using the solutions and the solutions actually address their problems of having a redundant network.

And also, as Mr. Altair said, we believe that we are going to see a boom happening when those solutions go to the B2C market.

And we need to have aggressive prices. And that's why we are working on solutions at better prices with new chips and also with conversations with Qualcomm, which is our biggest partner for this.

Thank you very much, Bernardo. The next question comes from Andre Salles, sell-side analyst with UBS.

Please go ahead, Andre.

I would like to know more details about the margin dynamic for the solar energy business. If we look at the consolidated margin, we can see that it has gone up in this segment alone.

And the margins were very concentrated in the organic business. Renovigi did not grow so much as the rest of the segment did -- so if you could give us more color about what happens with Renovigi margins, that would be interesting.

I would appreciate it.

And the second question is about your liquidity. You have BRL 1.5 billion in cash.

What can we expect for the use of those funds? We know that you have payments to make for the acquisition of Renovigi.

There are some debts. I would like to know more about those 2 points.

Thank you very much.

Well, very briefly about cash. We need to -- we actually had to make some decisions about how to use the BRL 500,000 that we raised from BNDES.

What we had in mind at that point was that we believe that we would have a tougher market in terms of credits and we would be able to help our partners as we did in previous years. So that was our major concern there.

It was not really about commitments that we already had at that time. And we also have investment commitments, as Bruno said, there are some acquisitions that we are negotiating right now, but they are not so great that they would consume our cash entirely.

We just wanted to recompose our cash, so that would be in a better position for a year that would be more restrictive in terms of credit for our partners, and we would -- we would be able to help them, if necessary.

As Marcio said, Renovigi posted lower results. Renovigi has inventories that actually became more expensive.

And now we are turning that inventory in, we are updating the costs, but solar energy had higher margins in 4Q '22 higher than we expected and higher than we planned. And this is something we have been saying since the very beginning.

Our plan is for solar margins to be sufficient to keep our EBITDA at around 9% to 10%. We don't want it to come in the way of our average or a consolidated EBITDA.

That's what we expect from the solar business. We want it to be a significant segment for us.

We want it to have volume, but that is what we are planning. And of course, we might have good surprises because of our brand and our installers that are much more professional than the competition, they are better trained.

And we believe that we are going to see some consolidation happening also in the solar business. And that is what we expect, we expect to see EBITDA margins at around 10%.

Marcio, if you would like to jump in, please go ahead.

Sure. As Mr.

Altair said, we can see higher margins in the -- on the organic side. And we worked very hard on Renovigi to balance our inventory costs.

We had expensive inventories in March and April 2022. And of course, it takes months to balance things out.

And that is why Renovigi margins were lower. Of course, our price policy for Renovigi is a little bit different.

We needed to be more aggressive in the beginning but if you compare the results from when we took over to for Q '22, you can see that margins increase significantly, not as much as Intelbras margins as a whole but in terms of this efficiency, the results were very good. There are still some adjustments to be made, but they are normal and they are completely different from the situation we were in when we took over.

All the reports that we posted for Renovigi have been improving quarter after quarter. The supply chain, the procurement department is unified now and we are using the best freight practices, so Renovigi is now reaping the benefits of that synergy with Intelbras as a whole.

So let's move on to the next question. The next question comes from Mr.

Cezar, Analyst with Santander. Would you like to unmute your microphone, Cezar?

If so, please go ahead.

Hello. Good morning, everybody.

Congratulations on the great results. My question is related to Renovigi too.

We were talking about margins. What should be the expected margin level for Renovigi?

And the second question is about security. If you could give us more color about the drivers behind margins for security and what should we expect for 2023.

Well, when it comes to security, we don't think we are going to see many changes. We don't have any plans for changing margins.

And Paulo can give you more details about that, our Security Manager.

Our strategy from the beginning for Renovigi, has been gross margins that are lower. But at the end, when we look at our EBITDA it should be closer to Intelbras margins because the expenses are lower for Renovigi but Marcio and Paulo can give you more color on those questions.

The variation in security margins is actually normal from one quarter to the next. The sales profiles differ across quarters.

And if you look at the consolidated results for 2021 and '22 you can see that the results are very much in line with our expectations. And as Altair said, we should keep the same trend.

We don't think we are going to see significant variations apart from those natural variations due to product mix, but if you can consider the consolidated results for the full year, the margins should be at the same level as previous years.

That fluctuation is natural. It is more related to product mix than any price strategy or other strategies about our margins.

Now Marcio?

Well, as I said earlier, for the fourth quarter was a market was a moment in which we were able to see some opportunities in the market but we should consider the 3Q 2022 results as a comparison base. And we are going to bring better net income for Renovigi.

That is the goal. We want margins to be lower, but because of the structure, the net income for Renovigi will be similar to Intelbras net income as a whole.

Now I would like to turn it over to Luca Branding sell-side analyst with Bank of America. Luca, go ahead.

I would like to know more about your working capital. If we look at the fourth quarter of 2022, you decreased your inventory and you explained more about that in your presentation.

So I would like to know what we should expect for the coming quarters? And also, when it comes to suppliers, we know that there should be an increase.

Actually, there was an increase in the fourth quarter. And I would like to know if that helps with cash generation.

And I would like to know more details about that and your expectations for the first quarter 2023.

And I would like to know the different dynamics for suppliers and inventories. If there's any detail that you would like to highlight about that, I would appreciate it.

Rafael, would you like to take that one?

Yes, sure. Thank you very much, Luca.

Well, our inventory track record actually suffered a little bit because of the pandemic. The inventory level that we have right now should be kept for the coming quarters.

It is very close to what we consider to be ideal. We don't think we are going to see many changes about that.

When it comes to suppliers, you mentioned factoring. Just to make it very clear, we always work with factoring and that actually happens because of a decision from suppliers.

It is very clear if you look at our explanations in our earnings release. And I would like to make it very clear that we are not extending payment terms with banks.

In any operation, we don't do that. The suppliers ask for that only, not banks.

So we work with a payment term of 180 days max, which is the necessary time for them to work with their operating cycle from the moment where we receive the materials and we issue the invoice and repay the suppliers.

However, some suppliers need some payment advances. So they sign a contract with banks to receive those advanced payments.

And that is the number that you are -- that we are highlighting in the suppliers line. But again, we don't do that with bank operations.

We pay the suppliers in the term agreed on directly with the bank and the bank settles the operation with the suppliers. I think there was a second question, right?

Yes. If you could give us more detail about -- well, you already mentioned inventories, but I would like to know more details about -- still about factoring, but also when it comes to supplier operation as a whole, should we expect to see a lower volume with -- in the next quarter, the first quarter 2023.

And also if there is any different dynamic if there is any difference between suppliers?

Actually, the increase that happened in 4Q was not so significant. It is more related to product mix.

It was not something that we had planned for. It is related to our business as usual.

And we don't have any policy for that in our procurement policies. We don't have differences across segments or product lines.

We follow the same standard for all operations. Okay.

And just as a complement, the 120 days is actually the same or it is closer to the standard number for all 3 business lines?

Of course, the suppliers, there are some that are larger than the others but they use more or less the same standard. So you can consider our track record as a rule for -- or as a reference for all 3 segments.

There are no major differences from one to the next.

And we have a question here. It was submitted by Guillerme with Franklin Templeton.

Guillerme would like to know if there's any specific detail that we could give him about our financial results and the exchange rate variation -- and he would like us to explain the positive impacts of that and why that happened.

Well, for the past 2 years, we have been trying to protect our terms, our shorter terms for the next 30 or 60 days. And considering that range of 60 days before maturation, we are able to take advantage of some good FX variation moments and fix the rate for that moment that is closer to the moment where we acquire products or raw material.

And in 4Q '22, the dollar depreciated actually against the real, it was 4.40 -- 5.40, and it came down to 5.20, so we took advantage of that variation that was beneficial for us, and we were able to use a favorable hedge policy. But that is something that we cannot plan for, right?

We never know when the FX rates will or down.

In 3Q 2022, we had a negative variation. And in 4Q '22, the variation was beneficial for us.

So considering our policy, we try always to minimize the impact. That is the main intention about our policies to minimize impact.

We always want to have 70% of our portfolio hedged with a term of 60 days before maturation. We want to always hedge our commitments at the amount of about 70%, 60 days before the maturation.

And also, we had a very strong cash generation, and we invested that cash.

And of course, that contributed as good results, positive results due to -- because they are posted as financial revenue. And that was very positive for us.

Well, I don't think we have any more questions. If you would like to raise one more point, please feel free to do so.

I am going to wait a few seconds and then I will turn it over to Mr. Altair for his closing remarks.

Mr. Altair, please go ahead.

All right. Well, thank you very much once again for being here in another earnings call.

Thank you very much for submitting your questions. I would just like to tell you some more about our expectations for 2023.

We have been telling you for a while now that we expect challenging 2023. But as we always say, in tougher years, Intelbras has historically performed well because the market is very selective.

The market selects the companies that are organized, that are very well organized as our company is, and that happened many times in our past.

And on the positive side, we now have a very good supply chain, a much better situation than the one that we had last year and in the previous years where we had shortages of many materials, especially higher value-added products, especially for communication and security and now the supply chain has gone back to normal levels, and we were also able to launch new technologies and new products. We always -- we also have new businesses coming in this year.

The project, they are bringing significant growth rates for the company. We also have some strategic partnerships that are critical for us to complement our portfolio and product lines that were not in such a good shape before, but that is changing now.

And we also have a strategy of strengthening our channels and to train our installers and resellers, we have a wonderful policy for our distributors. Our brand presence is very strong.

So as usual, we are always looking at the medium term and the long term.

The short term is a consequence of our hard work, and it can change overnight. We just created actually our 10-year vision.

We finished our 10-year vision for all of the different business lines. And we are going to have a growth rate that is in line with our track record over the past 12 years.

And of course, that is the result of our focus and hard work in our core business. We select projects and initiatives, and we need to be selective so that we can have sustainable growth, a solid growth -- of course, we don't want to get ahead of ourselves.

That has always been a concern for Intelbras.

Our target has always been to grow at the 9% or 10% level in real terms, and that is exactly what we have been doing. And that is exactly what we are going to continue to do over the next years.

So once again, thank you very much for being here in our earnings calls, and thank you very much for asking questions. And I hope to see you again next quarter or in any other event where we have the chance to talk.

Thank you, Mr. Altair.

So with this, I would like to conclude our 4Q 2022 earnings call. Thank you very much.

And please feel free to contact us at our Investor Relations e-mail. Thank you.

Have a great time.

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