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Linx S.A. (NYSE:LINX)
Q4 2020 Earnings Call
Apr 20, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Linx's conference call to discuss the results of the fourth quarter of 2020. With us today is Mr. Alberto Menache, CEO; Ramatis Rodrigues, CFO and IRO; and Carolina Pontes, head of investor relations.

We would like to inform you that this event is being recorded and simultaneously translated into English. [Operator instructions] This event is also being broadcast live via webcast and may be accessed through Linx's website at ir.linx.com.br, where the presentation is also available for download. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded.

Before proceeding, let me mention that forward-looking statements about future events, operating or financial results are all based on the beliefs and assumptions of Linx's management and on information currently available to the company. Forward-looking statements are no guarantee of performance as they involve risks, uncertainties, and assumptions since they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the floor over to Alberto Menache to start the presentation.

Mr. Menache, you may proceed.

Alberto Menache -- Chief Executive Officer

Good morning. Thank you very much for your interest and trust in Linx. In 2020, we experienced many new things and challenges brought about by the COVID-19 pandemic. Among the many social and economic consequences, we saw the temporary shutdown of stores of sectors deemed nonessential.

This movement occurred all over the country during certain periods of time, while at the same time, e-commerce became increasingly pervasive, offering our clients a very unique opportunity to continue to operate their businesses. With this backdrop, Linx, with its innovation DNA, was once again able to offer alternatives to help retailers remain relevant and keep their businesses active even when their doors were closed. Some of the solutions that allowed retailers to continue to operate their business include Fast-Farma, Payment Link, mobile POS, and e-commerce platform that enables integration with marketplaces and payment gateway fully integrated with our ERP. According to data from the monthly trade survey from IBGE, even though sales volume was negative in the last two months of the year, in the full year of 2020, sales were up by 1.2%.

It is the fourth time in a row that retail sales are up year on year. With the December decline, retail sales were the same as they were in February prior to the pandemic period in Brazil. On the same note, e-commerce grew 41% vis-a-vis 2019, reaching a record figure of BRL 87 billion in sales, according to eBit/Nielsen. We have yet to see any relevant impact on churn due to the unique profile of our customer base and also the low impact of monthly fees charged over retailer sales.

Our Opportunities Committee continues to monitor the impacts of COVID-19. In addition to all the measures to protect our cash put in place since the early days of the pandemic, Linx has also implemented a home-office work arrangement for 100% of its workforce since mid-March 2020. And so far, there is no forecast of return to the offices. We reaffirm our commitment to the long term, ensuring the safety of our team, the service to our customers and suppliers, and consequently, the commitment to our business.

Before proceeding with the call, I would like to highlight the current status of the business combination involving Linx and Stone, as informed in a notice to the market dated April 7. At this time, CADE's Administrative Tribunal is analyzing the technical opinion of CADE's General Superintendence, which recommended the approval of the combination of business without restrictions. Linx will maintain its shareholders in the market, in general, informed as to developments of the referred proceeding and the final decision to be granted by CADE's Administrative Tribunal. Until the final approval is granted, Linx and Stone will continue to operate independently.

Now, I will turn the floor to Ramatis, who will talk about the results of the fourth quarter of 2020. Ramatis, you may proceed.

Ramatis Rodrigues -- Chief Financial Officer and Investor Relations Officer

Thank you, Alberto, and good morning to you all. Looking at the presentation on Slide 3, Linx Core recurring revenue increased 7% year on year, and I would like to highlight here a few points. When we look at the delivery app since the acquisition by Linx in February of 2020, the app posted an 135% growth of total recurring revenue, and its customer base increased 85% in the same period. Another highlight is the total recurring revenue of Hiper that grew 42% when compared to the 12 months of 2019.

Customer base was up 40% vis-a-vis December 2019, and the Hiperadores network grew 40% in 2020. Big Retail recurring revenue grew 11% versus Q4 of '19, and the activation of cross solutions was 56% higher when compared to 2019. And Millennium recurring revenue was up 25% versus Q4 '19, with an increase of 94% in the number of e-commerce projects when compared to December 2019. Finally, in December, Linx reached 409 franchisees accounting for 30% of all new acquisitions in Q4 '20.

And same franchisee sales were 26% higher when compared to the 12 months of 2019. Still on Slide 3, we show the main highlights of Linx Pay that posted a total recurring revenue annual growth of 26%. TEF increased its share of Linx Pay total recurring revenue, reaching 49% in the quarter, and traded volume was 62% higher in 2020 vis-a-vis 2019. The Payment Link reached more than 14,000 registered customers, and QR code and Pix together reached 13,000 customers already integrated to Linx's ERP.

Another highlight was Gateway's total recurring revenue that grew 15% quarter on quarter, reaching 3,400 customers in December. Linx Pay's TPV was 4.5 times higher in 2020 versus 2019. Still about Linx Pay, it's important to say that we also identified some unusual operating losses arising from a commercial partner of Linx Pay in the total amount of BRL 40 million, fully recognized in the fourth quarter of 2020. Linx has addressed the vulnerabilities that led to these losses.

And this event does not impact the business combination of Linx and Stone as per the conditions set forth in the Association Agreement. Now, moving to Slide 4. Here, we have the highlights for Linx Digital. Total recurring revenue grew 42% in the quarter when compared to the previous year.

As of April 2020, we posted volume similar to a Black Friday every month with a GMV for e-commerce platform growing 73% in 2020 versus 2019, the equivalent to BRL 2.3 billion of traded volume in the year. The total recurring revenue of Linx Impulse was up 36% versus the fourth quarter of 2019, accounting for 67% of the total recurring revenue of Linx Digital. Also, the volume of ADS was 50% higher quarter on quarter. As for Omni OMS, at the end of the quarter, it had 20 clients and 5,600 stores for rollout.

The total recurring revenue was up 29% year on year, increasing its share to 10% of the total recurring revenue of Linx Digital. In December of 2020, 300 retailers had already posted their inventories on marketplaces following the announcement of the partnerships. And finally, on a quarter-on-quarter comparison, we more than tripled the number of agents and certified to sell Linx Digital Solutions. Now, before I turn the floor to Carol, I would like to talk about the provision for loan losses that was 6.5% of the net revenue in the total for the year, meaning BRL 57.3 million.

This figure also reflects the full provision for operating losses of Linx Pay. Excluding this effect, the ALL over net revenue would be 1.2% on Q4 of 2020 and 2% in the full year. Another important point is that requests for negotiation involving the maturity date of the invoices of our clients have been analyzed on a case-by-case basis under the current COVID-19 scenario. And by the end of December of 2020, approximately 98% of all invoices with extended maturity had been paid on time, a percentage even higher than the 96% posted at the end of September.

Moreover, our cash position is very comfortable: BRL 130 million of net cash. And excluding the leasing-related amount from gross debt resulting from IFRS 16 and the net earn-out of accounts payable for acquisitions, Linx's adjusted net cash would be BRL 293 million in the fourth quarter of 2020. Now, I'll turn the floor to Carol, our head of IR, who will proceed with the presentation.

Carol Pontes -- Head of Investor Relations

Thank you, Ramatis, and good morning to you all. On Slide 5, we see that the recurring revenue was BRL 228 million, accounting for 84% of gross revenue. Gross revenue was 6% higher when compared to Q4 '19. Year to date, Linx gross revenue totaled BRL 1 billion, up 11% year on year.

This quarter, Linx Core represented 70% of the total recurring revenue, whereas Linx Digital accounted for 17% and Linx Space, 13%. This variation is explained by the continued growth in demand for digitalization solutions that started last quarter due to the impact of the COVID-19 pandemic. Now, on Slide 6, we have the 5% growth of net revenue when compared to Q4 '19 and 11% growth year on year, 2020 and 2019. Moving to Slide 7.

Adjusted EBITDA was BRL 42 million in the quarter, with an adjusted EBITDA margin of 18% in Q4 '20. Year-to-date adjusted EBITDA was BRL 201 million with an adjusted EBITDA margin of 23%. Lastly, on Slide 8, we show the nonrecurring expenses in the quarter that totaled BRL 60 million. This amount includes mainly the calculation of the unusual operating losses of Linx Pay, as mentioned by Ramatis; legal and financial advisory expenses arising from Stone's proposal; Linx's stock options plan; and also the impact from the anticipation and assignment of receivables offered by Linx Pay Hub allocated to the financial results.

Thank you for your attention. And now, we will move to the Q&A session about the results of the quarter.

Questions & Answers:


Operator

Thank you. [Operator instructions] We now conclude the Q&A session. I would like to turn the floor over to Mr. Alberto Menache for his final remarks.

You may proceed, sir.

Alberto Menache -- Chief Executive Officer

I would like to thank you all for all your efforts and your dedication throughout the years. And my special thanks goes to Linx's team who have been relentless during this transition phase. We've been enduring this pandemic moment for over a year. And I would like to thank our suppliers.

I would like to thank Stone. They've been extremely collaborative throughout this process with CADE. And thank you to all of you who have been covering our performance despite the fact that we are still waiting for CADE's final approval. Thank you all very much.

I wish you a very good day and a very good week.

Operator

[Operator signoff]

Duration: 18 minutes

Call participants:

Alberto Menache -- Chief Executive Officer

Ramatis Rodrigues -- Chief Financial Officer and Investor Relations Officer

Carol Pontes -- Head of Investor Relations

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