IR CONTACTS
Gilsomar Maia (CFO/IRO)
Tel.: +55 (11) 2099-7105
Douglas Furlan (IRM)
Tel.: +55 (11) 2099-7773/7097/7089
[email protected]
São Paulo, May 4, 2016 - TOTVS S.A. (BM&FBOVESPA: TOTS3), the leading developer of business solutions in Brazil and Latin America, announces
today its results of the first quarter of 2016 (1Q16). The Company’s consolidated financial statements were prepared in accordance with the accounting
practices adopted in Brazil, which are in consonance with the International Financial Reporting Standards (IFRS). To facilitate comparison, we have
presented the pro-forma (unaudited) consolidated results that combine the results of TOTVS and Bematech corresponding to three months for 1Q15
and 4Q15 and corresponding to 12 months for LTM-1Q16 and LTM-1Q15.
1Q16 - EARNINGS RELEASE
Net Revenue: R$551.4 million in 1Q16 (-1.0% vs. 1Q15 pro-forma and -3.5% vs. 4Q15 pro-forma) and R$2,256.6
million in LTM-1Q16 pro-forma (+1.3% vs. LTM-1Q15 pro-forma).
Recurring Revenue: R$334.0 million in 1Q16 (+8.7% vs. 1Q15 pro-forma and +3.1% vs. 4Q15 pro-forma) and
R$1,285.5 million in LTM-1Q16 pro-forma (+8.1% vs. LTM-1Q15 pro forma).
Subscription Revenue: R$52.1 million in 1Q16 (+16.3% vs. 1Q15 pro-forma and +4.7% vs. 4Q15 pro-forma)
and R$196.1 million in LTM-1Q16 pro-forma (+17.2% vs. LTM-1Q15 pro-forma).
EBITDA: R$114.6 million in 1Q16 (-12.4% vs. 1Q15 pro-forma and +34.8% vs. Adjusted 4Q15 pro-forma) and
R$440.7 million in LTM-1Q16 Adjusted pro-forma (-15.8% vs. LTM-1Q15 adjusted pro-forma).
Net Income: R$49.8 million in 1Q16 (-38.9% vs. 1Q15 pro-forma and +0.5% vs. 4Q15 Adjusted pro-forma) and
R$252.7 million in LTM-1Q16 Adjusted pro-forma (-20.9% vs. LTM-1Q15 adjusted pro-forma).
CONFERENCE CALL - PORTUGUESE: May 5, 2016, 10:30am (Brasília)
Webcast: click here | Telephone: +55 (11) 3193-1001 or +55 (11) 2820-4001 (access code: TOTVS) | Replay: +55 (11) 3193-1012 or +55
(11) 2820-4012 (access code: 2244142#) until May 11, 2016 or at ri.totvs.com.br
CONFERENCE CALL - ENGLISH: May 5, 2016, 12:00pm (Brasília)
Webcast: click here | Telephone: US Toll Free +1(888) 700-0802 / International +1(786) 924-6977 / Brazil +55 (11) 3193-1001 or +55 (11)
2820-4001 (access code: TOTVS) | Replay: +55 (11) 3193-1012 or +55 (11) 2820-4012 (access code: 9531239#) until May 11, 2016 or at
ir.totvs.com
1
MESSAGE FROM THE MANAGEMENT
In 1Q16, the economic scenario in Brazil combined with the transition from the licensing model to the subscription
model resulted in a year-on-year decrease of 1.0% in the Company’s total revenue. Subscription revenue grew 16.3%
and, as a percentage of total revenue, overtook license fee revenue, which declined 30.2% vs. 1Q15. In all, recurring
revenues grew 8.7% year on year and accounted for 60.6% of total revenue, while non-recurring revenues decreased
12.9%.
EBITDA margin ended 1Q16 at 20.8%, 270 basis points lower than in 1Q15 and 590 basis points higher than adjusted
EBITDA margin in 4Q15. Margin recovered quarter-on-quarter, despite the 3.5% decline in total revenue and the
seasonal effect of wage increase in São Paulo, mainly because of the costs and expenses structure adjustments
carried out by TOTVS in the second half of 2015.
We understand that the economic scenario is challenging, but we are confident that we are on the right path with the
transition to the subscription model, the continued specialization by sector, the integration of Bematech operations
and the constant pursuit of efficiency in our operations.
RECENT EVENTS
COLLECTIVE BARGAINING AGREEMENT IN SÃO PAULO
On February 15, 2016, the São Paulo state IT companies association (Seprosp) and the São Paulo state IT
employees union (Sindpd), signed a collective bargaining agreement that fixed a 10.67% wage increase, of which
8.5% with effect from January 1, 2016, and 2.17% with effect from November 1, 2016. Note that the city of São Paulo
represents about 43% of the total payroll of TOTVS.
DIVIDEND PAYMENT
The Ordinary and Extraordinary Shareholders Meeting held on April 26, 2016 approved the distribution of dividends
in the amount of R$66.579 million (R$0.40736 per share) for the year 2015, to be paid to shareholders on May 11,
2016. This dividend amount, added to interest on equity paid on August 19, 2015 and January 13, 2016, resulted in
a total payout of R$127.094 million (R$0.77833 per share), which corresponds to 65% of the net income in 2015.
NEW BOARD OF DIRECTORS
The Ordinary and Extraordinary Shareholders Meeting held on April 26, 2016 approved the new Board of Directors
of TOTVS, consisting of nine members, of whom eight are independent members. Among the independent members,
the following were reelected: Pedro Luiz Barreiros Passos, Germán Pasquale Quiroga Vilardo, Pedro Moreira
Salles, Maria Helena dos Santos Fernandes de Santana, Sérgio Földes Guimarães, Wolney Edirley Gonçalves
Betiol and Danilo Ferreira da Silva. Mauro Gentile Rodrigues da Cunha was the newly elected member. Laércio
José de Lucena Cosentino, founder and CEO of TOTVS, was reelected as the non-independent member.
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At the first meeting of the Board of Directors held after the shareholders meeting, on April 28, 2016, Pedro Luiz
Barreiros Passos and Germán Pasquale Quiroga Vilardo were re-elected as Chairman and Vice-Chairman of the
Board of Directors, respectively, and the board members who will participate in the Company´s committees were
appointed. For the Personnel and Remuneration Committee, Pedro Moreira Salles and Laércio José de Lucena
Cosentino, as the CEO of TOTVS. For the Audit Committee, Maria Helena dos Santos Fernandes Santana, Danilo
Ferreira da Silva and Mauro Gentile Rodrigues da Cunha. And for the Strategy and Technology Committee,
Laércio José de Lucena Cosentino, Germán Quiroga Pasquale Vilardo and Wolney Edirley Gonçalves Betiol.
The directors will hold office until the Ordinary Shareholders Meeting of 2018. The resumes of the directors are
available on the TOTVS Investor Relations website (ir.totvs.com).
OPERATING AND FINANCIAL PERFORMANCE
The consolidated results of 1Q16 presented in the Quarterly Information report (ITR) include Bematech’s results for
the period. To facilitate comparison, we have presented the pro-forma (unaudited) consolidated results that
combine the results of TOTVS and Bematech corresponding to three months for 1Q15 and 4Q15 and
corresponding to 12 months for LTM-1Q16 and LTM-1Q15.
The reconciliation between the pro-forma results of 1Q15 and those in the ITR is shown in Attachment IV of this
document. Moreover, the quarterly financial information of TOTVS, Bematech and the pro-forma information relating
to 2014 and 2015 are available in the “Financial Information > Interactive Spreadsheets” section of the TOTVS
Investor Relations website (ir.totvs.com).
NET REVENUE
Net revenue totaled R$551.420 million in 1Q16, compared to R$557.034 million in 1Q15, led by recurring revenues,
which grew 8.7% in the quarter to reach R$333.980 million, accounting for 60.6% of net revenue, compared to
55.2% in 1Q15 and 56.7% in 4Q15. In the last 12 months, net revenue grew 1.3% and totaled R$2,256.634 million,
driven by the 8.1% growth in recurring revenue and the 6.5% drop in non-recurring revenue.
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Software revenue totaled R$355.286 million in the quarter, down 0.5% from R$356.945 million in 1Q15, mainly due
to the 30.2% decline in non-recurring license fee revenue caused by the 19.4% drop in average ticket and 13.4%
decrease in the number of sales.
The reduction in license sales was mainly due to: (i) the downturn in economic activity in Brazil, which resulted in a
longer period of conversion of the sales pipeline, especially among large clients; and (ii) the migration of a part of the
pipeline of sales to new clients to the subscription model, especially among smaller clients.
The reduction in the licensing average ticket was mainly due to: (i) the lower share of sales to large clients in the
quarter, mainly due to longer period for conversion of the sales pipeline; (ii) the 39.7% decrease in the incremental
licenses from the corporate model charged in 1Q16.
In the corporate model, clients have unrestricted access to management solutions,
for which they pay an incremental license fee at the beginning of each year based on
their real growth (excluding inflation) in the prior period. Thus, this reduction in the
incremental licenses portrays the slower pace of growth of clients in this model in
2015.
Also, the migration of a part of the sales pipeline of new clients to the subscription
model adversely affected acquisition of clients in the corporate model throughout
2015 and was one of the factors for the lower increment in the corporate model in
1Q16.
Software recurring revenue increased by 7.3% in 1Q16 compared to 1Q15, the same growth level of the last 12
months, and corresponded to 85.5% of total software revenue in the quarter, up 6.2 percentage points from
1Q15. In the last 12 months, recurring revenue from software totaled R$1,175.363 million and increased its
share of total net revenue by 5.5 percentage points.
The growth in software recurring revenue both in the quarter and in the last 12 months was mainly driven by the
16.3% growth in subscription revenue, which corresponded to 14.7% of the software revenue in 1Q16 and 14.0%
in the last 12 months. Note that this is the first quarter when subscription revenue exceeds license fee revenue,
even the latter having incremental licenses from the corporate model in the quarter.
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The growth in subscription revenue was due to the higher share of new sales to small and medium clients, especially
of TOTVS Intera, which helped increase average monthly subscription by 64.9% year on year.
TOTVS Intera is the subscription model launched in June 2015, by which clients define and manage the number of
identities they will be enabled to have unrestricted and simultaneous access to all the management, productivity and
collaboration software solutions from TOTVS. This model allows clients to use the solutions in any of the clouds
approved by TOTVS or, if more convenient, in their own infrastructure (on premises).
In 1Q16, subscription client additions increased by 6.5% quarter on quarter but decreased by 29.1% year on year.
The decline in the year-on-year comparison is mainly due to the addition of fewer microenterprises as new clients on
account of the weak economic activity in Brazil in 1Q16, when compared to 1Q15.
Maintenance revenue grew 5.6% in the quarter and 5.7% in the last 12 months, lower than the average increase in
the IGP-M (inflation index used in most maintenance agreements) in these periods, and corresponded to 82.8% of
recurring revenue from software. Growth in this revenue line has been adversely affected mainly by: (i) the lower
volume of license sales in previous periods; (ii) the suspension of maintenance due to increased client defaults; and
(iii) the partial cancellation of maintenance due to layoffs at clients, especially large ones.
Service revenue decreased 0.9% in 1Q16 compared to 1Q15 but grew 5.1% in the last 12 months. The year-on-year
variation in the quarter was mainly due to: (i) the 8.3% decline in software implementation services in the period,
chiefly due to the lower pace of sales in recent quarters; and (ii) the 14.2% increase in services not related to software
implementation, which accounted for 37.7% in 1Q16.
Hardware revenue fell by 4.6% in 1Q16 compared to 1Q15 and by 1.9% in the last 12 months, mainly due to: (i) the
downturn in economic activity in Brazil, reflected in the lower pace of conversion of the sales pipeline and the
slowdown of new establishments openings; and (ii) the changes in tax legislation, especially in the state of São Paulo,
where fiscal printers were replaced by S@T fiscal equipment, which has a lower price per unit. In the quarter-onquarter comparison, the 25.3% decrease is also due to the seasonal effect on hardware sales in the period.
Note that tax legislation in Brazil is being amended in several states, which has resulted in the transition from a model
based on sales of tax solutions, which was earlier exclusively non-recurring, to a model based on higher recurring
revenues, thus creating significant opportunities to increase the Company’s recurring revenue.
5
CONTRIBUTION MARGIN BY BUSINESS
Software contribution margin grew 320 basis points in the quarter-on-quarter comparison and stood at 65.6%
in 1Q16, 50 basis points higher than the software contribution margin in the last 12 months, despite the 8.5% wage
increase in São Paulo, with effect from January 1, 2016, as commented in the “Recent Events” section. The changes
in software contribution margin in the quarter was chiefly due to: (i) the reduction in recurring personnel costs due to
the costs and expenses regarding structure adjustments carried out by the Company during the second half of 2015;
(ii) the lower share of complementary solutions provided by partners; and (iii) the non-capitalization of software
research and development expenses incurred by Bematech in 1Q16, versus the capitalization of R$1.939 million in
1Q15.
In the last 12 months, the reduction in software contribution margin is mainly due to: (i) the lower growth of software
revenue, as commented in the “Net Revenue” section, especially due to the transition from the licensing model to the
subscription model; (ii) the IGP-M (the inflation index used to adjust recurring revenue) being significantly lower than
IPC-A (inflation index normally used in the economy) during the period; (iii) the additional costs with the costs and
expenses structure adjustments during the second half of 2015; and (iv) the capitalization of software research and
development expenses of Bematech from January to October 2015, in the amount of R$5.687 million.
It is important to mention that TOTVS reiterates its commitment to disciplined cost management in order to drive the
sustainable growth of software contribution margin in the medium and long terms, while continuing its investments in
innovation to meet market requirements and foster new growth cycles.
Service contribution margin increased by 940 basis points in 1Q16 compared to the previous quarter despite
the wage increase in São Paulo, as commented earlier, and the reduction in net revenue from services in the period.
This recovery in service contribution margin is chiefly due to the reduction in recurring personnel costs resulting from
the costs and expenses structure adjustments carried out by the Company during the second half of 2015.
In the year-on-year comparison, the reduction in service contribution margin is chiefly due to the decline in net
revenue from services in the period, as commented in the “Net Revenue” section.
6
Hardware revenue fell by 37.0% in 1Q16 compared to 1Q15 and by 29.9% in the last 12 months, mainly due to: (i)
the decline in net revenue from hardware, as commented in the “Net Revenue” section; (ii) the increase in costs due
to the appreciation of the U.S. dollar against the Brazilian real in 2015, which was not fully passed on to prices in the
last 12 months; and (iii) the decrease in revenue from government subsidy, booked in other operating revenues in
the Income Statement, established in September 2015 by the Paraná state government through Decree 2,175/15,
which limited the amount of ICMS tax credit used by companies in the sector to the total debits of the period; and (iv)
the capitalization of hardware research and development from January to October 2015, amouting R$1.642 million
in 1Q15 and R$5.694 million in 9M-2015.
OTHER OPERATING EXPENSES
Selling and commission expenses taken together as a percentage of net revenue in 1Q16 declined by 40 basis points
in the quarter-on-quarter comparison, and by 10 basis points year on year. The decline was mainly due to the
reduction in commission expenses in the periods, chiefly as a result of: (i) the lower volume of license sales through
franchises; and (ii) the change in the sales mix between franchises and own units.
Selling expenses increased by 4.9% in 1Q16 compared to the same quarter the previous year, primarily due to: (i)
the change in sales mix between franchises and own units; (ii) the higher volume of software sales in the subscription
model in the quarter; and (iii) the recent adjustments in the remuneration model of the sales team in order to align
the incentives mainly related to the subscription model, which tend to cause a short-term increase in selling expenses
at a higher rate than the software revenue. In the quarter-on-quarter comparison, selling expenses decreased by
7.1% despite the wage increase of 8.5% in São Paulo, mainly due to the recurring personnel costs adjustments
carried out by the Company during the second half of 2015.
Allowance for doubtful accounts in 1Q16 corresponded to 1.4%, compared to 1.8% in 1Q15 and 1.6% in the last 12
months. This allowance reflects the level of defaults observed in the business during the period. Considering the
current level of defaults in the market, the Company will continue its credit analysis policy and its efforts to recover
the debts already provisioned for.
7
Advertising and marketing expenses corresponded to 1.5% of net revenue in 1Q16, versus 1.8% in 1Q15. The
decrease is chiefly due to the revision of the general marketing plan of the Company and the beginning of the
marketing activities integration of TOTVS and Bematech.
General and administrative expenses corresponded to 8.0% of net revenue in 1Q16, versus 7.1% in 1Q15. The yearon-year increase in the share of general and administrative expenses is mainly due to: (i) the decline in the Company’s
net revenue in the period, as commented in the “Net Revenue” section; and (ii) higher wage increase in the last 12
months compared to the same period the previous year.
The quarter-on-quarter decrease of 58.4% in general and administrative expenses is primarily due to the additional
provision of R$59.022 million for legal contingencies made in 4Q15. Excluding the additional provision for
contingencies made in 4Q15, general and administrative expenses as a percentage of net revenue decreased by 20
basis points in 1Q16, despite the wage increase of 8.5% in São Paulo, mainly reflecting the synergies related to the
beginning of the administrative areas integration of TOTVS and Bematech.
Management fees declined 43.5% year on year, primarily due to the optimization of the administrative structure and
the synergies related to the beginning of the integration of TOTVS and Bematech operations.
The quarter-on-quarter variation in other operating income was largely due to expenses with lawyers and banks with
regard to the corporate reorganization of TOTVS and Bematech, amounting to R$5.895 million booked in 4Q15.
Depreciation and amortization expenses in 1Q16 increased 25.9% year on year, mainly due to the purchase price
allocation of the corporate reorganization with Bematech in 4Q15. The increase in amortization expenses in the
quarter-on-quarter comparison chiefly reflects the three months of amortization of the Bematech purchase price
allocation booked in 1Q16, compared to two months of amortization booked in 4Q15.
8
EBITDA AND NET INCOME
EBITDA in 1Q16 totaled R$114.602 million, up 34.8% from the adjusted pro-forma EBITDA in 4Q15 and down 12.4%
from the adjusted pro-forma EBITDA in 1Q15. EBITDA margin in the quarter stood at 20.8%, compared to 23.6% in
1Q15, growing 590 basis points from the adjusted EBITDA margin in 4Q15.
The year-on-year decline in EBITDA was mainly due to: (i) the decrease in license fee revenue; (ii) the higher share
of subscription sales, which generate less revenue in the short term due to deferred revenue recognition; and (iii) the
decline in hardware result, as commented in the “Contribution Margin by Business” section.
EBITDA growth in 1Q16 compared to Adjusted pro-forma EBITDA in 4Q15 is chiefly due to: (i) the recovery of
contribution margin from software and services, as commented in the “Contribution Margin by Business” section; and
(ii) the optimization of administrative structures with the beginning of integration of TOTVS and Bematech operations.
The decrease in net income in 1Q16 and the adjusted net income in the last 12 months, compared to the same period
the previous year, was largely due to the negative financial result in 1Q16 and the last 12 months, mainly due to: (i)
the increase in debt, mainly caused by the inflow of R$181.055 million in 3Q15 from the loan hired from BNDES in
2013; (ii) and the decline in financial revenues on account of the payment of R$473.585 million in cash regarding the
corporate reorganization with Bematech in 4Q15; and (iii) the positive result from the sale of minority interest in
ZeroPaper in January 2015.
In the quarter-on-quarter comparison, net margin increased by 30 basis points, mainly due to the growth in EBITDA
margin in the period.
9
CASH FLOW AND DEBT
Gross cash decreased by R$71.040 million in the quarter mainly due to: (i) the net income, excluding non-cash items,
of R$101.626 million; (ii) the working capital investments of R$73.805 million, on account of the advance payment of
infrastructure solutions contracted for the cloud operation, in the amount of R$17.851 million, and the increase in
inventories in the amount of R$7.998 million and payments to hardware vendors of Bematech in the period; (iii) the
net investments in fixed assets, in the amount of R$5.228 million; (iv) the payment of interest on equity for the second
half of 2015; (v) the partial amortization of the principal of the BNDES loan taken by TOTVS in 2013; and (vi) the
partial amortization of principal amount of the debentures of Bematech issued in 2014, amounting to R$5.560 million.
Net debt totaled R$473.486 million in 1Q16, equivalent to 1.1x pro-forma adjusted EBITDA in the last 12 months.
10
OWNERSHIP BREAKDOWN
TOTVS ended 1Q16 with capital stock of R$541.374 million, consisting of 165,637,727 common shares, with a free
float of 66.9%. Free float is calculated as the total number of Company shares, excluding shares owned by
Management and related persons, Fundação Petrobras de Seguridade Social (PETROS), BNDES Participações
(BNDESPar), and shares held in treasury. In 1Q16, 96.2% of the free float was held by institutional investors and
93.0% by foreign investors.
ABOUT TOTVS
Top provider of business solutions for companies of all sizes, it provides management software, collaboration and
productivity platforms, hardware and consulting services, with absolute leadership in the SMB market in Latin
America. With over 50% market share in Brazil, it is ranked by Interbrand as the 21 st most valuable brand in Brazil.
TOTVS is present in 41 countries with more than R$2 billion in revenues. In Brazil, it has 15 branches, 52 franchises,
five thousand distribution channels and 10 development centers. Outside Brazil, it has 7 branches and 5 development
centers (United States, Mexico, China and Taiwan). For further information, visit www.totvs.com
This report contains forward-looking statements that are based not just on historical facts but reflect the desires and expectations of TOTVS
management. Words such as "anticipate", "wish", "expect", "foresee", "intend", "plan", "predict", "project", "desire" and similar terms identify
statements that necessarily involve known and unknown risks. Known risks include uncertainties that are not limited to the impact of price
and product competitiveness, the acceptance of products by the market, the transitions of the Company’s products and those of its
competitors, regulatory approval, currency fluctuations, supply and production difficulties and changes in product sales, among other risks.
This report also contains certain pro forma statements prepared by the Company exclusively for informational and reference purposes and
are therefore unaudited. This report is current as of this date and TOTVS is under no obligation to update it further to include new information
and/or future developments.
11
ATTACHMENT I – INCOME STATEMENT
12
ATTACHMENT II – BALANCE SHEET
13
ATTACHMENT III – CASH FLOW
14
ATTACHMENT IV – RECONCILIATION OF PRO-FORMA RESULTS OF
THE FIRST QUARTER OF 2015 (1Q15)
15