Log-In Logística Intermodal S.A. (LOGN3) Earnings Call Transcript

Good day, everyone. Welcome to Log-In Logistica Integrada Conference Call to discuss Second Quarter 2026 results. I'm Sandra Calcado, Log-In Investor Relations, Strategy and ESG Manager, and I will be your host during the event. Presentation and comments about the results will be made by Marcus Voloch, CEO; Pascoal Gomes, Log-In's Finance and Investor Relations Vice President; Felipe Gurgel, Coastal Shipping Officer; and Clovis Severino, Road Cargo Transportation Officer. They will comment on the company's performance and main highlights of the quarter. Then they will be available to answer questions that you might have. The slide presentation and the earnings release in both Portuguese and English are available in the Results Center of the company's IR website. And we will be showing here the presentation in Portuguese here on Zoom. In addition to the rooms available in Portuguese and English, we will also provide Brazilian Sign Language interpreting during the whole event. [Operator Instructions] Be we advised that this webinar is being recorded and will be available on the company's website. Before proceeding, as usual, we would like to clarify that forward-looking statements that might be made during this conference call relative to Log-In's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of Log-In's management and on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions and they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors can affect the future results of Log-In and could cause results to differ materially from those expressed in such forward-looking statements. Now with the legal disclaimer made, I'd like to turn the floor to Marcus Voloch, CEO of Log-In to start with the initial remarks.

Thank you, Sandra. Good morning, everyone. I'm Marcus Voloch, CEO of Log-In. I'd like to thank everyone for joining Log-In Logistica Intermodal's Q2 '26 Earnings Conference Call. Let's begin the presentation on Slide 3. We ended the quarter with net operating revenue of BRL 777 million, up 5.1% year-on-year and almost BRL 1.46 billion in the first half of the year. Adjusted EBITDA for the quarter was BRL 113.4 million (sic) [ BRL 113.9 million ] with EBITDA margin of 14.7%. For the half -- the first half, BRL 220 million with EBITDA margin of 15.1%, down 8.4 percentage points. This is not the result we want but I'll explain where it comes from and what we are doing. I'll start with TVV, which recorded a very best quarter in its history. EBITDA was BRL 70 million, up 70% from last year with a margin of 52.1%. In May, we began operations at the Penedo back area, which added 65,000 square meters and expanded the terminal total area by 60% in a high demand market like Espirito Santo. This has already been reflected in revenue from warehousing and ancillary services this quarter, but we still have a lot of capacity for further growth, which should come in the next quarters. In container handling, the highlight was the resumption of exports, particularly coffee and granite along with a record mark of 26,900 containers handled in imports, driven by electric vehicles. Coastal Shipping posted a 6.6% volume growth in the quarter to 193,400 TEUs. We recorded the highest cabotage volume for a second quarter, growing faster than the market, which rose 4.2% according to our back. And we achieved this with a fleet that was -- that had less capacity as we're currently in the process of dry docking several vessels. Our commercial efforts are paying off. cabotage posted its highest revenue for the second quarter with an improvement in unit revenue in the domestic trade. Nevertheless, global shipping EBITDA declined for 3 reasons. Firstly, Feeder trade, which includes a higher share of operations with lower contribution margin and the effect of the U.S. dollar depreciation on revenue pegged to the U.S. dollar. Secondly, variable costs associated with higher volume. Thirdly, and the biggest impact, fuel costs, which are under pressure due to the conflict in the Middle East situation, we have partially mitigated through the implementation of the emergency fuel adjustment, EFA. Regarding margins, costs continue to rise faster than revenue. We are addressing what's under our control, reliability, fuel consumption and operating efficiency, and we will continue to do so. But no single efficiency gain on its own can close the gap we face today. cabotage margin remains substantially below the level necessary for the most economic equilibrium and below what it was 2 years ago without even factoring in inflation over that period. Freight rate recovery began to take hold this quarter and is our #1 priority in cabotage. At Tecmar, revenue grew 4.3%, driven by the less than truckload business with a more profitable mix, but earnings fell short of last year's level. Unit costs rose, particularly fuel and freight and price adjustments offset only part of this increase. Tecmar's turnaround is still underway. We replaced the senior leadership and brought in executives with experience in the less than truckload market, which is where our greatest challenge lies. The recovery is gradual, and we will report on progress quarter-by-quarter, and we will recover. Two observations regarding our balance sheet. Net income of BRL 133 million for the quarter includes a gain of BRL 155 million from the divestiture of Log-In Pantanal and Log-In Resiliente. This is a nonrecurring event, and we do not treat it as operating income. On the other hand, we have reduced net debt while maintaining capital discipline in a high interest rate environment, thereby preserving capacity and flexibility for the next generation of the fleet, which might eventually come. Regarding the current environment, the facts are well known, high interest rates, rising fuel costs and weak demand. This applies to the entire sector, and that is precisely why cost discipline is critical, our #1 priority, but it is not the environment that defines top line. We have then volume increased our market share and begin to restore freight rates. Improving our bottom line requires setting the price of our services at a level that provides a return on the capital invested in cabotage, and that is what the company is focused on. With that, I'll turn the floor over... [audio gap]

Thank you, Voloch. Well, again, this is Felipe Gurgel speaking, Coastal Shipping Officer. And I think that Voloch mentioned a number of things related to Coastal Shipping, and I'll get into more detail now. As I had mentioned in our last call, the year of 2026 is a very challenging year, not just because of price issues, but also on the operational front. So on the operational front, we have a very complex dry-docking schedule this year. And in the second quarter, I would like to highlight the completion of the dry docking of Log-In Endurance, which follows Log-In Resiliente's dry docking, which took place in the first quarter, both without any operational impact. It was done perfectly. Currently, Log-In Polaris is undergoing its mandatory docking operation. I would also like to highlight the progress we made in our NPS. Our level of service improved. Our NPS once again reached the quality zone, thanks to the ongoing efforts of various departments across the company led by the customer service team. This has been our focus for some years now. On the commercial side, the challenge is also significant. cabotage market grew 6% in the first half of the year according to ABAC data, and we managed to grow well above that level. However, freight rates remain under pressure. Even though in the second quarter, we were able to partially offset the loss in margins through not only pricing measures, but also initiatives focused on cost optimization. For example, we chose to operate with one less vessel practically throughout the year because of the dry-docking process, and we didn't bring in an additional vessel to replenish capacity and we are still hitting record marks. In the Feeder trade, we experienced a sharp drop in volume, particularly on the Santos, Rio and Vitoria Feeder route due to a decline in imports and exports. In exports, we can see some recovery. And we had some impacts from weather events that contributed to this downturn, and this has been a big offender in 2026. Now getting to the quarter's figures, we saw a 6.6% increase in total volume, ending the half year practically in line with last year's volume, so with a different mix, this time driven by substantial increase in cabotage and less Feeder services. NOR closed the quarter in line with Q2 '25. However, 3.2% below in the half year comparison. Consequently, we saw about a 38% decline in EBITDA for the quarter and a 36% decline in EBITDA for the half year, driven primarily by the reduction in Feeder services since the additional volume from Cabotage and Mercosur partially offset the margin decline. Lastly, I would like to underscore that in the third quarter, we continue to face a challenging environment as we have already begun to notice some impacts resulting from more frequent weather-related issues. While we are already in peak season for cabotage, particularly on the route to and from Manaus. And there is some uncertainty regarding this year's drought conditions on the river, which according to current projections indicate a greater degree of restriction than in 2025. While these are the main highlights regarding coastal shipping, and I now turn the floor to Clovis Severino, who will present the results for Road Cargo Transportation. Thank you very much.

Thank you, Gurgel. Well, I am Clovis, Road Cargo Transportation Officer, Tecmar's Officer. So let's speak a little bit about the second quarter. In Q2, as Voloch mentioned, Tecmar reported a 4.3% increase in net revenue, reaching almost BRL 143 million, driven primarily by LTL, which is our main product in Tecmar's transportation ecosystem, but with an improved cargo mix, which helps us a lot. in addition to growth in road cabotage. Road-cabotage continues to grow quarter-on-quarter and year-on-year. On the other hand, we still face significant pressure on profitability, mainly on account of diesel price that continues to impact our business. With diesel, if we look at our whole middle mile, last mile transfer model and post mile, this has an impact of 50% to 55% of our income statement. So it brings a big impact, and we are working on recovering the rates. But we continue to advance with Tecmar's turnaround and now with a very clear focus on restoring profitability. We are currently reviewing our portfolio and contracts, improving vehicle utilization because that is super important, improving operational productivity, headcount and having much stronger cost discipline. Our goal is not simply to increase revenue, but to translate that growth into margins and profits because at the end of the day, that is what matters. And there is a very important strategic component for this process. We know that Tecmar is a key part of the Intermodal strategy of the Log-in Group. And with that, we continue to build a large integrated logistics platform, connecting road transport to cabotage. Warehousing is a product in our view and the last mile delivery, always offering our customers an increasingly comprehensive end-to-end solution. The improvement of the progress made in road-cabotage this quarter reinforces this strategy and Tecmar's role in the group, looking at our ecosystem, bringing competitive differentials for us as transportation is part of the Log-in MSC Group. Therefore, our path is very clear to restore Tecmar's profitability and at the same time, accelerate its integration with the Group's other assets, capturing new growth opportunities and synergies to an Intermodal approach. This is it. We expect to bring you even better results throughout 2026. This is what I had about the road cargo transportation. And I now turn the floor over to Pascoal, our VP. Thank you.

Hi, everyone. Good morning. This is Pascoal Gomes speaking, Financial and Investor Relations Vice President. And I'm speaking on behalf of Gustavo Paixao, Terminals Officer, who is on vacation. I will now present TVV's operating and financial results for Q2 '26. Starting with container handling. Container handling reached 65,500 boxes, the highest volume in TVV's history for a second quarter. This performance was driven primarily by the recovery in exports, following a weaker comparison base in Q2 '25. The highlights being coffee and granite as well as growth in imports, especially vehicles transported or EVs, electric vehicles transported in flat rack containers. On the other hand, we observed a decline in general cargo volume. This decline is not associated with a structural deterioration in demand at the terminal, but is primarily due to fewer vessels specialized in general cargo calling at the terminal and a greater operational concentration of container ships throughout the quarter. It is worth noting that the strong demand for electric vehicles boosted ro-ro vessel traffic, partially offsetting the decline observed in the more traditional general cargo. From a financial standpoint, TVV recorded the highest net operating revenue ever reported in the second quarter. This result was driven mainly by growth in container throughput, the terminal's high utilization rate this quarter and increased revenue from warehousing and ancillary services, driven by the start of operations at the Penedo back area, our expansion project. Even while absorbing the initial cost of the new operation and the expansion of the terminal's operational infrastructure, so we were able to maintain discipline in cost management and capture operational leverage gains. As a result, TVV delivered a record adjusted EBITDA of BRL 17 million for the quarter. But more important than the record itself, we believe this result reflects the recovery of TVV's operating capacity in recent quarters, the maturation of investments made and an increasingly diversified revenue mix across handling, warehousing, logistics services, et cetera. We continue to view TVV as a key driver of cash generation and value creation for our company, our group, combining growth potential with operational discipline, which is quite significant and additional opportunities now with the expansion of Penedo Retro area to monetize our recently expanded infrastructure. Now moving to the next slide. Log-in ended the quarter with net debt of BRL 1.16 billion and gross debt of BRL 1.48 billion, maintaining a debt profile, as Marcus mentioned, that is predominantly long term and consistent with the nature of Log-in's business. With regards to leverage, we observed a decrease in the net debt over EBITDA ratio for the last 12 months quarter-on-quarter. Now, obviously, it is important to note that this improvement was benefited by the effect of the sale of our vessels, Log-in Pantanal and Log-In Resiliente during Q2, both through the inflow of funds in our cash and the accounting impacts associated with the deal. Although the divestiture of the vessels accelerated the reduction in leverage this quarter, we, as the company, continue to work to ensure that the future trajectory is increasingly supported by the operational performance of the business, particularly by the performance of TVV, Coastal Shipping and Tecmar's turnaround and by the profit improvement initiatives currently underway in our operations. And I will turn the floor to CEO, Marcus Voloch.

Thank you. Thank you, Pascoal, Gurgel and Clovis. I think that the main message is that despite the challenges in the macro and mainly macroeconomic level, the company is totally focused in inverting the trajectory of our results focusing on cost operating efficiency and the quality perceived by our customers. Internal initiatives are in full swing and the results will start to be reached soon. With this, I'll move to the question-and-answer session, and we are here for you. Sandra, over to you.

[Operator Instructions] I have here a question from [ Pedro Bajo ]. Coastal Shipping EBITDA and EBITDA margin declined in the first 2 quarters of 2026. What factors had the highest impact here? And what initiatives already implemented by the company are likely to contribute to a recovery in profitability?

All right, Pedro, thank you for the question. I'll turn the floor to Felipe to speak about the initiatives we are adopting in Coastal Shipping.

Thank you, Pedro. Well, the situation in Coastal Shipping involves a number of things happening at the same time. One is the supply and demand relationship. Today, we have a supply of capacity in the market, particularly in some specific routes, which leads to a retraction, particularly in freight rates because of the supply and demand relationship. On the other hand, we see port terminals, road transportation and diesel bunker fuel prices very much under pressure. So port terminals lack capacity. And of course, the supply and demand ratio plays against this. There's a possibility of increased revenue, but this means costs to us. And this has been compressing our margins. Since the second quarter of last year, we've seen a significant margin reduction in our operations. So what have we been doing to try to recover part of the margin. This year, since we have this dry-docking schedule that was quite significant with 3 vessels, which is not to charter any other vessel because this would bring an additional cost to the system. And we're able to replenish capacity by buying slots from partners. And this has been supporting our growth without us incurring the cost of having an additional chartered vessel. This has been one of the primary initiatives. The second one, particularly related to the cost of fuel, we applied EFA, as Voloch mentioned, EFA, the Emergency Fuel Adjustment policy to recover partially not just bunker fuel, but also the increase in diesel prices. And since the end of Q1, we've had a more aggressive plan to recover our prices with all of our customers. And of course, this is very well backed up by this whole market situation that we see happening in cabotage. So these have been the main initiatives adopted by the company. We continue to explore a number of initiatives involving mainly cost reductions. And this has been our drive and will continue to do so now that we get into the budget plan, and we'll start defining the assumptions for next year so that we can have sustainable levels, as Voloch mentioned. Thank you.

Thank you, Gurgel. This is an anonymous question, which is divided into 3 questions. I will ask one at a time because these are different topics. First question, I'd like to better understand the decline in results for Coastal Shipping. Could you provide a little more detail regarding the deterioration of Feeder mix and the competitive environment in both Feeder and Coastal Shipping. Does this appear to be a onetime event? Or is it a structural change?

I will answer this myself. Well, part of the question has been answered by Gurgel. Structurally, there is an oversupply of capacity. On the other hand, there is an undersupply of port capacity. This is exactly what Gurgel explained. And we understand that this is a onetime event. It's structural. But this will be quickly offset especially by demand after many years that our team has in cabotage, we see that whenever new capacity comes in, it takes 18 to 24 months to be occupied. So we are in the time frame for the additional capacity that was added in 2024, 2025. The capacity starts being occupied, we start seeing some stabilization in that regard. But freight rates were so low that everyone is suffering. We know our cost base. And the cost base for the sector is not so different from ours. Vessels are vessels, ports are ports, containers are containers, trucks are trucks, it's the same for the whole industry. So if we are suffering, other players are suffering just as much. And the locals got to a situation which is no longer bearable. Everyone is burning cash to maintain the operation, and this is not sustainable. So we adopted a super strong initiative to recover freight rates. Our levels are below 2 years ago, not factoring in equation. So we have a long road ahead of us, but it is inexorable. It's inevitable. It will happen. It's just a matter of time for freight rates to recover. But like I said, the supply and demand equilibrium and cabotage trade will stabilize with growth. The market has been growing. Like I said, it's 24 months that we need for the market to occupy the extra capacity. As for Feeder, it's a matter of cargo mix. Feeder, we don't have exactly control over the cargo that is coming into Brazil or leaving Brazil with just a service provider. And there are some routes that are more or less profitable and our Feeder customers demand from us and the cargo mix ends up impacting our revenue base. So this is not structural. This is a onetime of space, but it's not totally under control. What we can do is open or close the faucets for other cargo or even for Feeder, trying to look for more profitable cargo. This is super dynamic. It's something we do week by week, ship by ship. Our team is piloting and monitoring this thermometer, but always looking to have more profitability.

Thank you, Marcus. Second question from the same person. Regarding the strong results in TVV, do you believe this could be the new normal? Or was it a onetime occurrence?

One of bit of everything, TVV is going to a great moment. The official opening of Penedo Retro area, our terminal was operating at 95%, sometimes above 100% capacity. I mean, how can we do that? We would shut down some streets but the trucks would -- that the trucks would use, and we would put containers there. And now we're bringing the operation has much more satisfactory occupancy levels, another 65,000 square meters, a lot of area to be explored and to bring in new revenue. So the increase in profitability in revenue and margins of TVV will continue to increase. What was a onetime off effect was the imports of cars. We know that the government, whenever the government increases the level of taxes, importers take advantage of the last days until the end of June. They enjoy the lower tax rate and so an absurd volume of vehicles unloading in May and June. But this has normalized. It's never 0, but it's stabilized. So this June and May peak should not continue. But the EBITDA level that TVV starts generating is higher because of the Penedo Retro area, which was officially opened and started operating.

Thank you, Marcus. Now the third question from this very same person. Regarding the sale of Log-in Pantanal and Resiliente, what is a sales and leaseback transaction, correct? What was the sales price, if you can disclose it? And the lease cost going forward, how is the lease amount adjusted?