Romi S.A. (ROMI3) Earnings Call Transcript

Good morning, everyone. Good morning, in minutes, we'll start the earnings conference call, and we will discuss the company's third quarter 2026 results. Good morning. Welcome to Romi's third quarter 2026 Earnings Conference Call. Before we begin, I would like to clarify that this conference call is intended exclusively for investors and investment professionals. Any statements made during this conference call regarding the company's business outlook, operating and financial projections and targets constitute forward-looking statements based on management's current expectations regarding the company's future performance. These expectations are highly dependent on market conditions, the overall economic performance of Brazil, industry developments and international markets and are therefore subject to change. Please note that this conference call is being recorded and conducted in Portuguese with simultaneous interpretation into English. The presentation slides are available in the earnings Center section of our Investor Relations website at www.romi.com/investors. [Operator Instructions] Further instructions will be provided later for participants wishing to ask questions verbally. Joining us today is Mr. Luis Cassiano Rosellen, Chief Executive Officer; Mr. Fabio Tar, Chief Financial and Investor Relations Officer. Executives will first present the company's Third quarter 2026 results and will then be available to answer your questions. I will now turn the floor over to Mr. Luis Cassiano.

Thank you, Julia. Good morning, everyone. Thank you for your presence here for this third quarter 2026 earnings call. I want to start by acknowledging that we had a very difficult quarter with results below what we consider adequate excluding the extraordinary effects of tax credits, we recorded a negative adjusted EBITDA of BRL 9.1 million. We're not ratified with this performance, and we understand our responsibility to reverse the situation. It is true that the business environment remains very challenging, especially in Brazil with great caution investment decisions. This has affected the Romi machinery unit and even more significantly, the casting and machine unit, but regardless of the scenario we need to act. We are intensifying actions to adapt structures, improve productivity and review operational processes. And we are doing this with a sense of urgency because we need to recover the profitability of our operations. On the other hand, we had very positive news at BW our German unit. There were BRL 252 million in new orders, including an important contract of approximately BRL 200 million. As a result, the portfolio reached BRL 725 million, giving important visibility for the coming years that is years. Looking ahead, we remain cautious about the economic outlook but determined to move forward. We have important opportunities and our focus is on executing with discipline, speed and turning those opportunities in consistent results. I thank our shareholders, employees, customers and business partners for their trust. I now give the floor to Fabio, who will detail the quarter's results. Thank you very much.

Thank you, Cassiano. First of all, good morning, everyone. Thank you for taking part of this earnings call, starting with the highlights for this third quarter where we have an order backlog has been quite significant of 421.5 million that represented an increase of 8.5% compared to the third quarter 2025, very much propelled by BW orders that in this period reached BRL 250 million, that is growth at BW of nearly 64% compared to the same period of 2025. This volume of order backlog allowed us to reach the end of the third quarter of 2026, BRL 993 million of order backlog, and this represents nearly 11% over September 2025. We're also BW subsidiary represents out of this total BRL 725 million. That is analyzing BW specifically. And the order backlog we're talking about over what we had of September 2025. That means we have a very positive outlook of BW for the next quarter. EBITDA for this quarter, that is the adjusted one considering the Tax credit, it reached BRL 10.2 million with a margin of 4%. This is a drop concerning the third quarter of 2025 because our operating revenue, net operating revenue reached 257 million. That means a drop of [ 26.5% ] compared to the last year, where the main drop was machines and machine cast iron, specifically for the domestic market in any case, as it has large-sized projects, it had been expected with lower volume of specific net sales. But looking into the portfolio, we see that the fourth quarter will be much superior. And also, we should highlight a recognition of tax credits of BRL million. That is before tax. And the net profit effect is BRL 36 million. These are tax credits that come from the nonliving of social security contribution on certain payroll amounts where it was sentenced at our claims. And that means we have now the recognition of this asset, and it will be compensated with federal tax, future ones. It was also an object of a fact that we did say in September were the big important is to have this credit to fully compensated at most likely in months. And we also talk about our participation in the two main international exhibitions that we have on called MTS Chicago, NDL is IMB in Stuttgart, Germany. Both were very well visited. We had a booth for Rome and VW and it was quite favorable to us. We must mention here that we celebrated the 70th anniversary of the Rome zeta. It was quite an interesting event where we had in partnership with the Rome Foundation to celebrate the 70th anniversary of the Romita produced in Brazil and also in September '24, we stated interest on our own capital on BRL 26 million, which is $0.28 per shares to be paid in 2027. In terms of conjunctural indicators analyzing both the industrial or the GDP and the gross fixed capital formation, where there was a slight growth for the second quarter of 2020 compared to the same of the previous year 1.4%. However, when we analyze in a more stratified manner, the evolution we can realize that it was fully represented by softwares and hardwares that were imported that showed an increase of 8.5% in the same period. And when we look into the beer consumption of machines, there was a reduction of 2.4%. And when we analyze the industrial GDP which is the sector that impact us the most, which is the transformation industry present in the same period when we talk about comparison, a reduction of 0.9% for the second semester of 2026. If we look into other economic indicators, one is the average installed capacity utilization, it ended August in 69%. And if we analyze is under the previous years, the average for this year is a bit under in 2026. However, we are still able to see an industrial activity that is reasonable, but we still don't see a trend of reduction that would be more significant, although we do see that compared to the previous years, does not show as much force. And finally, the Industrial Entrepreneur Confidence Index, this already shows very low from October 2022. We see that where since 2024, it remains at a level under 50 points which is the one that splits optimism from pessimism. So what do we see on a day-to-day when it comes down to it is a market that shows that is very challenging with the index of confidence the Industrial Entrepreneur Confidence Index that is low, that actually does impact in a negative manner, mainly when it comes to investments, that it impacts directly the impact of roaming machines. When it comes to the different sectors that demand our product in roaming machines, there wasn't much of a difference. When we talk about having machinery equipment, job shops, we have here is 50% of our client base. So we're talking about both machinery and job shops. It's quite a diversity, which is a correct of our equipment and of our database of clients, and that's still true for 2026 when compared to the previous years. BW is a niche sector with major projects to be delivered in less sectors in 2026, we still see a highlight the performance of engines and systems, which was over half of the revenue for 2026. And here, we hear engines and systems related to energy generation. Machinery and equipment had a certain growth but mostly because there was in this period, a reduction of delivery for construction and mining. But in any case, the market, both for the other segments that BW works with is still very positive. And finally here, rough and machine cast iron parts, we have a stability for commercial automotive, although as we know there was a reduction of the net revenue. We know the absolute number will drop does drop. So on the other hand, we also have construction that is here the yellow line. So that means there was a reduction here much more because of postponing some projects. But in terms of outlook, this segment is still positive. Agricultural machinery, we already have been seeing the last few years a performance that is much specifically dropping, and it has been recovering, but still very gradually. And for energy, wind energy that in last year, we pretty much didn't have any delivery in this year. It reached 14%. We still have some parts to be delivered by the end of the year. But in terms of outlook, it's still very uncertain the demand of this segment. In terms of net sales per business unit, for consolidated revenue, Romi machines increased bit its participation, but mainly because there was a reduction of the other segments of the other business units that made Romi machines get more share. But overall, the 3 business units remain 1 that represents very similar percentage in 2026 compared to the 9 months of 2025. In terms of revenue by geographic region, Brazil is still the one that represents in 2026, the same percentage that it had in 2025, that is 66%. And here, we highlight a new growth for the United States and mainly is BW growing the American market. And the other segments or the other regions are still constant as we can see from 2025 to 2026. In terms of order entry, we can see here an increase of 8.5% compared to the third quarter of 2026. So we have BRL 421 million. The total mostly represented by BW that had quite a growth and on the other hand, we see a reduction of roaming machines, especially in the domestic market, as we have been talking about an environment with many challenges with a high level of uncertainty that have a negative impact, both for Romi machines and also we can see that environment for Rofin machine cast iron part. For the year, we have a 15.6% reduction for Romi machines here because of this because of the level of uncertainty in the market, BW on the other hand, brought to higher volume of order and a drop also of machine cast iron. So in terms of here, portfolio we have here that will amount mostly the 992 because of BW machines. And for Romi machines, we see a reduction, and there is an impact in our portfolio and compared to the same period of last year, we're talking about a reduction of 28%. And the same is true with greater intensity for rough and machine cast iron parts. Also, although the absolute number is smaller, we have a 44% reduction. That means when we talk about the incremental BW, this portfolio by the end of September this year compared to the September of last year, it grew 10.9%. In terms of profitability, the gross margin is pretty constant compared to the third quarter of 2025. There wasn't much change. However, since we're talking about a 26% drop in revenue. The volume of gross profit had a reduction since we have a characteristic of operating expenses that are more fixed than variables. This reduction of the gross profit impacted both EBIT, where we see an adjusted that is negative of BRL 9.1 million or 3.5% negative and the same impact, we can also see right here on EBIT, where we see that goes from BRL 38 million to BRL 10.2 million, a margin of 11% to 4% represented mainly because of the drop in revenue. And your -- the net income, we see BRL 7 million as we say, excluding the tax credit. So we here have 4.7%. In terms of performance by business units, we had a 10% reduction of Romi machines because of the lower volume of order entry in the last quarters that way, we also see a reduction on the gross margin. Here, there are 2 main points. The first is an additional commercial effort to have a volume of business that is still and the second one here, the foreign market represented more than these revenues in 2026. And if we look into the comparison, there was an appreciation of the real currency and there is an impact or reducing the margins for exports. So with lower volume and the reduction of the gross margin has impact in all the other numbers as we can see here for the adjusted EBITDA going from 22.5 to nearly 16%. For BW, although there was a reduction in the operating revenue. As we already mentioned, there is a concentration that is high of BW for the last quarter of this year. But in any case, even with a revenue that it's a bit less, it shows a margin recovery here, which is a product and the deliveries that are more diversified in terms of geography and that also can bring us better margin. In that way, we're able to have a slightly positive EBITDA margin in terms of 2026. And finally, ROF in machine cast iron part has a reduction of revenue that is more significant. And we had a very low volume for the previous year, and this reduced a bit more this year. And obviously, this brings a greater challenge to dilute fixed costs and it ends up impacting the margin, both the gross and EBITDA margin where we're seeing very negative numbers here for the 9 months of 2026. In terms of financial position, this quarter was one of great cash generation, especially here coming from the advanced payments that BW received from the recent orders, in that way, it impacted in a positive way. The company's debt that went from BRL 469 million to BRL 101.5 million at the end of September this year. So we have BRL 670 million for cash, debt where we have here a reduction of the debt for this third quarter. And finally, the share performance, much under Bovespa for the results, mainly because of the macroeconomic environment and the level of uncertainty, we've been going through. All of this has been impacting in a negative way the performance of their shares in this 2-year period. So with that, we complete the presentation of our earnings Information. We thank everyone for your participation now we are available for questions that you might have. So thank you very much.

Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, this conference call is intended exclusively for investors and investment professionals. [Operator Instructions] everyone, the first question comes from Cedric Miranda.

So good morning. I'd like to know the impact of the elimination of the 6-day work week that would have in the company.