earnings release - ir.totvs.com.br · transport sub-segments, totvs also reinforced its positioning...
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4Q15 – EARNINGS RELEASE
Pro-forma net Revenue: R$2,262.2 million in 2015 (+2.9% vs. 2014) and R$571.4 million in 4Q15 (+0.1% vs. 4Q14).
Pro-forma Recurring Revenue: R$1,258.820 million in 2015 (+8.7% vs. 2014) and R$323.8 million in 4Q15 (+8.3% vs. 4Q14).
Pro-forma Subscription Revenue: R$188.8 million in 2015 (+21.4% vs. 2014) and R$49.7 million in 4Q15 (+19.4% vs. 4Q14).
Pro-forma Adjusted EBITDA: R$456.9 million in 2015 (-13.2% vs. 2014) and R$85.0 million in 4Q15 (-35.3% vs. 4Q14).
Pro-forma Adjusted Net Income: R$283.1 million in 2015 (-9.9% vs. 2014) and R$49.6 million in 4Q15 (-39.0% vs. 4Q14).
São Paulo, March 16, 2016 - TOTVS S.A. (BM&FBOVESPA: TOTS3), the leading developer of business solutions in Brazil and Latin America,
announces today its results of the fourth quarter of 2015 (4Q15). 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).
IR CONTACTS
Gilsomar Maia (CFO/IRO)
Phone: +55 (11) 2099-7105
Douglas Furlan (IRM)
Phone: +55 (11) 2099-7773/7097/7089
CONFERENCE CALL - ENGLISH: March 17, 2016, 12:00 p.m. (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: 9146969#) up
to March 23, 2016 or at ir.totvs.com
CONFERENCE CALL - PORTUGUESE: March 17, 2016, 10:30 a.m. (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: 5996756#) up to March 23, 2016 or at ri.totvs.com.br
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MESSAGE FROM THE MANAGEMENT
In 2015, the transition from the licensing model to the software subscription model was the main driver that contributed
to the net revenue growth of TOTVS. In addition to the negative impacts on profitability, which were already expected
during the initial phase of this transition, the worsening economic scenario in Brazil posed additional challenges for
the Company, resulting in lower net income and operating cash flow in the year.
The corporate reorganization involving Bematech in 2015 was another important step towards strengthening TOTVS’
portfolio of business solutions and its transition to the subscription model. With Bematech, TOTVS became the
leading solutions provider for the retail segment in Brazil by combining specialized solutions in management system,
point of sale (POS), commercial automation, fiscal solutions, e-commerce, mobility, means of payment solutions and
collaboration platform.
As such, we will adopt a customer-centric approach, while continuing our transition towards the subscription model
and our specialization strategy in each segment, having the client as the central focus. Despite the current adversities,
we continue to believe in the potential of Brazil and in technological innovation as an instrument to increase
productivity and competitiveness of companies, especially small and medium businesses.
RECENT EVENTS
BEMATECH – INTEGRATION OF OPERATIONS
On October 21, 2015, Brazil´s Council for Economic Defense - CADE approved the corporate reorganization involving
TOTVS and Bematech, consequent to which Bematech shareholders received: (i) 2,170,656 TOTVS common shares
totaling R$82.485 million on October 28, 2015, when they became TOTVS shareholders, resulting in a dilution of
1.3% of the TOTVS shareholders base; and (ii) R$473.586 million in cash on November 10, 2015.
With the consummation of the operation, the integration began of the companies’ administrative areas of solution
portfolios in order to format the offerings for the Retail and Services segments by combining the solutions from both
portfolios. To maintain the focus of the teams on the 2015 year-end closing results, the sales teams at TOTVS and
Bematech only started working together in January 2016, as envisaged in the integration plan.
On February 5, 2016, the BM&FBovespa - Securities, Commodities and Futures Exchange granted Bematech’s
request to delist voluntarily from the stock exchange, and on February 16, 2016, the Securities and Exchange
Commission of Brazil (CVM) granted Bematech’s request to deregister as a publicly held company. With Bematech’s
delisting and deregistration, TOTVS can move forward with the process of capturing administrative synergies.
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MANAGEMENT CHANGES On December 1, 2015, the Board of Directors elected Gilsomar Maia as Chief Financial Officer (CFO) of TOTVS,
who now also holds the position of Investor Relations Officer, thus unifying and optimizing the administrative and
financial structure of the Company. Maia joined TOTVS in March 2006 and has served as Risk and Process Manager,
M&A Manager, Planning Officer and Corporate Finance Officer.
On January 6, 2016, the Board of Directors reelected Laércio Cosentino as President after the resignation of
Rodrigo Kede Lima due to health problems, with personal and family impacts. With the resignation, Laércio Cosentino
now holds the positions of President and CEO and all Vice-Presidents will once again report directly to him to ensure
that the operations and strategy of TOTVS are preserved.
On January 21, 2016, the candidate proposed by the Board of Directors, Wolney Edirley Gonçalves Betiol, was
elected independent director at the Extraordinary Shareholders Meeting. Wolney is the co-founder of Bematech
and member of its board of directors, has a bachelor’s degree in Industrial and Electrical Engineering, a master’s
degree in Industrial Information Technology from Universidade Tecnológica Federal do Paraná, MBA from Fundação
Getulio Vargas and has completed specialization programs in management at IMD and the Wharton Business School.
On February 19, 2016, the Board of Directors elected new executives to the management of TOTVS: (i) Ronan Maia
Assis Carvalho Neto to the position of Vice-President of Systems and Segments for the Consumer segment;
and (ii) Eros Alexandre Jantsch to the position of Vice-President of Systems and Segments for
Microenterprises.
Ronan holds bachelor’s degrees in Data Processing and Civil Engineering and is graduated in Distributed System
Development. He worked for more than 15 years at PC Sistemas, a company acquired by TOTVS in 2013, where he
gained experience in services, consulting, support, and research and development.
Eros has a bachelor’s degree in Physics, with specialization in Strategic Project Management, and Strategic
Negotiation with Asia from INSEAD (SG), in Innovation from IEL-DUKE and Corporate Finance from Dom Cabral
Foundation. Eros has been working for Bematech for 23 years, where he is CEO and is experienced in research
and development, product marketing and international operations.
PAYMENT OF INTEREST ON EQUITY RELATED TO 2H15 The Board of Directors’ Meeting held on December 18, 2015 resolved on the distribution of interest on equity (“IOE”)
for the second half of 2015 (2H15) in the total amount of R$31.319 million, corresponding to R$0.19162 per share.
IOE was paid on January 13th to the Company’s shareholders as of December 21, 2015, and the Company shares
started to be traded “ex-interest on equity” as of December 22, 2015.
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MP 694 – REDUCTION OF TAX BENEFITS ON INNOVATION AND IOE Provisional Presidential Decree 694/2015, which set forth: (i) the suspension for 2016 of tax benefits established
by the Lei do Bem (Federal Law 11,196/2005), which allows the additional deduction of investments in innovation
from the Income Tax and Social Contribution; and (ii) the threshold rate for calculation of interest on equity the lowest
of Long-Term Interest Rate (TJLP) and the fixed rate of 5%, was approved by the Chamber of Deputies on March 2,
2016. However, this MP expired on March 8, 2016 for not being voted upon by the Senate by said date.
BRASIL MAIOR PLAN
On August 19th, the Brazilian Senate approved the Bill 863/15, which had already been approved by the Chamber of
Deputies on June 25th, reducing the tax reliefs on payroll granted in recent years by the Brasil Maior Plan to 56 sectors
of the economy, including information technology.
With the approval of the Bill 863/15, since December 1st, 2015, the following measures were established: (i)
elimination of the mandatory employer social security contribution (INSS) on gross revenue to allow said contribution
to be charged once again to payroll (20% of remuneration); and (ii) increase in the rate of said contribution from 2.0%
to 4.5% for taxpayers that choose to continue to be taxed on gross revenue.
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OPERATING AND FINANCIAL PERFORMANCE
The consolidated results for the year 2015 presented in the audited financial statements combined the months of
November and December of Bematech. In order to preserve comparability, we present the consolidated pro-forma
results (unaudited) combining the results of TOTVS and Bematech corresponding to 3 months of 4Q15, 3Q15
and 4Q14; and the 12 months of 2015 and 2014. The reconciliation between pro-forma figures and those in the
financial statements are presented in Attachments II and III of this earnings release.
It is also presented the results of TOTVS and Bematech separately, as this is the first quarter of unified reporting and
the companies began to operate commercially together from January 2016, as previously mentioned in the "Recent
Events" section. Thus, to better reflect the operations performance, from the 1T16, the results will be presented
exclusively on a consolidated basis, together with the historical pro-forma view (unaudited).
NET REVENUE (PRO-FORMA)
One of the key elements of the Company's strategy is to offer specialized business solutions integrated with
back office and management business platform. Through this approach, TOTVS provides business solutions that
help clients gain productivity in both their core and ancillary businesses, allowing the integration of clients with their
value chain.
This strategy is important to direct the Company’s organic and inorganic investments, with the focus on 10 segments
(Manufacturing, Distribution and Logistics, Retail, Services, Financial Services, Agribusiness, Construction and
Projects, Education, Health and Legal), which gives TOTVS the flexibility to allocate investments according to the
segments demands, their respective stages of maturity and economic cycles.
In 2015, TOTVS allocated the biggest share of its
inorganic investments to corporate reorganization with
Bematech, becoming the largest provider of business
solutions for the Retail segment in Brazil, with net
revenue of R$535.2 million. With Bematech, the TOTVS
Retail segment now accounts for 23.7% of total pro-forma
net revenue.
Given Bematech’s dominance in the hotel and passenger
transport sub-segments, TOTVS also reinforced its
positioning in the Services segment, which now accounts
for 14.8% of total pro-forma net revenue in 2015.
Though 2015 was a tough year for this segment,
TOTVS believes in the growth potential of this market
in the medium/long run.
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The Manufacturing segment now corresponds to 23.8% of Company’s pro forma consolidated net revenue in 2015,
versus 24.4% in 2014, which reflects the reality of the segment in Brazil. It is worth highlighting that this segment is
strategically important for TOTVS because it contributes significantly to the integration of value chains (e.g.:
Distribution & Logistics, Retail and Credit) and to the Company’s recurring revenue.
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Pro-forma recurring revenue accounted for 55.6% of pro forma net revenue in 2015, as against 52.7% in 2014,
totaling R$1,258.820 million. The relevance increase of the recurring revenue is mainly due to: (i) the increase of
21.4% in pro-forma subscription revenue; (ii) fall of 20.0% in pro forma non-recurring revenue from license fees; and
(iii) reduction of 1.5% in Bematech´s hardware revenue.
With Bematech, TOTVS became the provider of business solutions with a unique capacity to offer a complete
platform of tax solutions (ECF, NFC-e, S@T, connected ECF and NFC-e printer) for points of sale across Brazil.
Note that tax legislation in Brazil is undergoing changes in several states, which has resulted in a transition from a
model based on sales of tax solutions, which was earlier exclusively non-recurring, to a more recurring revenue
model, thus opening up significant opportunities to increase the Company’s recurring revenue.
Pro-forma recurring software revenue grew 8.4% in 2015, and now represents 82.4% of net pro-forma
software revenue, compared to 77.6% in 2014. The increase in the share of recurring revenue software is mainly
due to the 21.4% growth of the pro-forma subscription revenue in the period.
In 2015, net revenue from international operations corresponded to 3.9% of total pro-forma net revenue,
compared to 3.2% in 2014. This increase mainly reflects: (i) the change in the scope of the solutions portfolio, with
the focus on verticals with higher growth potential; (ii) the increase in the number of distribution channels across Latin
America, expanding the role of local entrepreneurs as franchisees; (iii) the partnerships between Bematech and
software companies, ISOs and buyers in the United States to meet local demand for integrated solutions including
POS, e-commerce, mobility and means of payment.
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EBITDA (PRO-FORMA)
Pro-forma EBITDA totaled R$371.475 million in 2015, as against R$524.768 million in 2014. EBITDA in 2015 was
affected by non-recurring events, such as provisions for contingencies, employee termination costs and expenses
with ownership restructuring of TOTVS and Bematech, commented in the sections “Operating Results – TOTVS
(Excluding Bematech)” and “Operating Results-Bematech”.
Excluding non-recurring events, pro forma adjusted EBITDA totaled R$459.913 million in 2015, with EBITDA margin
of 20.2%, compared to 23.9% in 2014. The decline in pro-forma Adjusted EBITDA is chiefly due to the drop in
contribution margin from software and services at TOTVS, as commented in the section “Operating Results – TOTVS
(Excluding Bematech)”, and in contribution margin from hardware at Bematech, as commented in the section
“Operating Results-Bematech”.
NET INCOME (PRO-FORMA)
Pro-forma net income totaled R$217.093 million in 2015. In addition to the non-recurring events that impacted pro
forma EBITDA, net income was also impacted by the extraordinary amortization of Virtual Age and the effect on the
bonus for the non-conversion of debentures, as commented in the section “Operating Results – TOTVS (Excluding
Bematech)”. Excluding these non-recurring events, pro-forma adjusted net income totaled R$283.079 million in 2015,
with net margin of 12.5%, mainly due to the decline in pro-forma EBITDA margin.
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OPERATING RESULTS – TOTVS (excluding Bematech)
NET REVENUE – TOTVS (excluding Bematech)
Net revenue grew 3.1% in 2015 to R$1,828.254 million. This growth was mainly due to recurring revenues, which
grew 8.7% in 2015 and 8.5% in 4Q15, corresponding to 62.4% of net revenue in the year and 64.7% in 4Q15,
compared to 59.2% in 2014 and 59.3% in 4Q14.
Services revenue grew 6.8% in 2015, chiefly due to the growth in services not related to software implementation,
which accounted for 38.8% in 2015, versus 33.1% in 2014, mainly driven by consulting services, which grew 25.0%
in the period. In the quarter, service revenue grew 1.0% from the same period of the previous year, but decreased
6.9% from 3Q15. This was mainly due to: (i) fewer business days in 4Q15; and (ii) lower allocation of the services
teams due to lower sales volume in previous quarters.
Software revenue grew 1.7% in the year, lagging net revenue growth, mainly due to non-recurring revenue from
license fees.
License fee revenue decreased 20% in 2015, mainly due to the 29.8% decline in the number of sales to new clients
and the 10.9% decline in number of sales to existing clients. In 4Q15, license fee revenue fell 31.1% as a result of
the 17.1% drop in the number of sales and 16.8% decline in license average ticket.
The reduction in license sales was mainly due to: (i) the downturn in economic activity in Brazil, which caused 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.
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In the year-on-year comparison, it is also important to note that the average ticket from license fee in 4Q14 was the
highest ever registered by the Company in a quarter, when the concentration of sales to large clients was higher than
normal due to the postponement by some clients of the investment decision until 3Q14, when the Soccer World Cup
and elections in Brazil ended.
Recurring revenue from software grew 8.4% in 2015 and increased its share of total software revenue by 5.1
percentage points, accounting for 81.3% of total software revenue of TOTVS. Between 4Q14 and 4Q15, recurring
revenue from software grew 8.3%.
In the year, recurring revenue from software grew 6.7 percentage points above total software revenue growth, mainly
due to the growth in subscription revenue.
Subscription revenue increased 25.6% in 2015 and corresponded to 10.2% of total software revenue, versus
8.3% in 2014, due to the 91.5% increase in average monthly subscription per new client. This increase was mainly
due to the higher share of sales to medium and small clients, especially in the TOTVS Intera model.
TOTVS Intera is the new 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).
The number of subscription clients added decreased by 3.2% from 4Q14 and by 8.5% from 3Q15. This reduction
was mainly due to the economic downturn in the period, especially in the Manufacturing and Services segments.
Note that despite the impact of the economic scenario, the subscription model has been performing notably better
than the licensing model.
Maintenance revenue increased 6.3% in 2015, exceeding the 12-month IGP-M (inflation index used in most
maintenance agreements) by 0.3 percentage points, and corresponded to 87.4% 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.
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Note that TOTVS focuses its operations on ten segments (Manufacturing, Distribution and Logistics, Retail, Services,
Financial Services, Agribusiness, Construction and Projects, Education, Health, and Legal), and total net revenue
growth rate reflects the weighted average growth of the segments.
The Manufacturing segment registered growth below
the overall net revenue growth in 2015 and is among the
segments most adversely affected by lower license
sales. This segment demands technology to
compensate the loss of competitiveness in the domestic
industry and significantly contributes to TOTVS’
recurring revenue, besides playing a highly strategic role
in integrating the value chains.
In 2015, the Retail segment grew 25.3%, versus
22.2% in 2014. TOTVS’ offerings in this segment stand
out because they integrate the back office and Point of
Sale (POS), Credit Analysis, and Queue and Inventory
Management solutions, and also integrate retailers with
other players in the value chain (e.g.: industries,
distributors, logistics operators and credit).
The Services segment decreased 6.3% in 2015, mainly due to the slowdown in the services sector across Brazil
during 2015. On the other hand, the Distribution/Logistics and Financial Services segments, which contributes
significantly to recurring revenue and sector integration, grew 6.7% and 8.1%, respectively.
CONTRIBUTION MARGIN BY BUSINESS – TOTVS (excluding Bematech)
In December 2015, the Company identified reclassification adjustments between costs of services, cost of support
and research and development relating to implementation, customer service and development of TOTVS solutions
for the financial sector, which impacted software and service contribution margin.
To enable comparability, the above reclassifications were made to the 2013 and 2014 results, which are available in
the section “Financial Information > Interactive Spreadsheets” of the TOTVS Investor Relations website (ri.totvs.com).
The decrease in software contribution margin in 2015 was chiefly due to: (i) lower growth in software revenue, as
commented in the section “Net Revenue”, 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
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(inflation index normally used in the economy) during 2015; and (iii) additional costs with employee termination
regarding the costs and expenses structure adjustments during the second half of 2015.
In 4Q15, additional costs and expenses regarding structure adjustments, which entailed employee termination
and reduced hiring, impacted negatively software contribution margin by R$3.060 million.
In the quarter on quarter comparison, the reduction in software contribution margin was mainly due to the combination
of a decline in license fee revenue and the growth in research and development and support costs, as a result of
wage increases during 3Q15 in Belo Horizonte, Rio de Janeiro and Recife, which fully impacted 4Q15 results, and
the wage increases during 4Q15 in Joinville, Porto Alegre and Caxias do Sul.
Services contribution margin decreased 230 basis points in 2015, mainly due to: (i) the lower allocation of
implementation teams on account of the slower pace of software sales, as commented in the section “Net Revenue”;
(ii) additional costs with employee termination regarding the costs and expenses structure adjustments during the
second half of 2015; and (iii) wage increases resulting from collective bargaining agreements signed during the year,
which were in average higher than in 2014 due to higher inflation, and which were not fully passed-through to
implementation projects.
Additional costs and expenses with employee termination related to structure adjustments, commented in
software contribution margin, negatively affected service contribution margin in 4Q15 by R$3.884 million.
In the quarter on quarter comparison, higher costs of services also reflect wage increases during 3Q15 in Belo
Horizonte, Rio de Janeiro and Recife, which fully impacted 4Q15 costs.
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OTHER OPERATING EXPENSES – TOTVS (excluding Bematech)
Selling and commission expenses combined increased 20 basis points as a percentage of net revenue, although
commission expenses did not increase during the year. This behavior of commission expenses was mainly due to:(i)
the lower volume of license sales through franchises in the period; and (ii) change in the sales mix between franchises
and own branches.
Selling expenses increased 9.8% in 2015 and 22.9% in 4Q15, when compared to the same period the previous year.
The increase in this expense line, higher than software revenue growth in the period, is chiefly due to: (i) the change
in sales mix between franchises and own branches; (ii) the higher volume of software sales in the subscription model
during the year, which resulted in a higher level of commission payout on revenue to branches’ sales teams in the
short term; and (iii) additional costs with employee termination regarding the costs and expenses structure
adjustments during the second half of 2015.
Additional costs with employee termination regarding the costs and expenses structure adjustments negatively
impacted selling expenses by R$1.072 million in 4Q15.
Allowance for doubtful accounts in 2015 corresponded to 1.8% of net revenue, versus 1.6% in 2014. In 4Q15, this
provision corresponded to 2.2% of net revenue, as against 1.4% in 4Q14. The increase in this provision was mainly
due to the higher default levels seen in the market during the year.
Advertising and marketing expenses corresponded to 2.6% of net revenue in 2015, up 0.3 percentage points from
the previous year, mainly due to the reduction in advertising and marketing expenses in 2014 on account of the
Soccer World Cup in Brazil and the decrease in license sales in 2015.
General and administrative expenses corresponded to 20.6% of net revenue in 4Q15, versus 6.2% in 4Q14. This
increase is chiefly due to the amount of R$59.022 million added to the provision for legal contingencies in the quarter.
This change in the estimated provision for legal contingencies is due to the continuous monitoring and risk control by
TOTVS, which during 2015 entailed: (i) the substitution of the main legal advisors conducting the civil and labor
lawsuits to obtain greater consistency and efficiency in the way proceedings are monitored and solved; (ii) the review
of the quantification of expected losses related to the proceedings; and (iii) the review of past outcomes of lawsuits
and the circumstances surrounding the new proceedings in which the Company is the defendant. It is important to
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note that this provision does not affect cash immediately and, even with the provisions booked, TOTVS will continue
to take all applicable measures to defend its rights in the lawsuits in question.
In the year, excluding the effect of this provision for contingencies, general and administrative expenses
corresponded to 6.6% of net revenue, compared to 6.5% in 2014. These expenses as a percentage of net revenue
remained steady in the year, despite the slowdown in software revenue growth and wage increases during the year,
which were above 2014 levels on average, mainly due to synergy gains from the administrative structures of
companies acquired in the past two years.
Management fees decreased by 10.7% in the year, mainly reflecting the provision for bonus for executives related to
the achievement of financial and individual targets in the period.
Other expenses in 4Q15 refer mainly to costs with lawyers and banks with regard to the ownership restructuring
involving TOTVS and Bematech, in the amount of R$5.895 million, and the provision for impairment related to the
goodwill of the subsidiary Ciashop, in the amount of R$2.536 million.
Depreciation and amortization expenses increased 13.0% in 2015, mainly as a consequence of: (i) the purchase
price allocation of the acquisition price of Virtual Age in 2Q15, when there was an extraordinary impact of R$5.458
million from the 12-month accumulated amortization of their intangible assets; and (ii) the purchase price allocation
of the corporate reorganization with Bematech in 4Q15, which increased depreciation and amortization expenses in
November and December in the total amount of R$3.416 million.
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EBITDA – TOTVS (excluding Bematech)
EBITDA in 2015 was impacted by (i) provision for contingencies amounting to R$59.022 million in 4Q15; (ii) additional
costs with employee termination regarding the costs and expenses structure adjustments carried out in the second
half of 2015, amounting to R$12.902 million, of which and R$8.972 million in 4Q15, which tends to result in a reduction
of recurring labor costs of approximately R$3 million per month; (iii) bank and lawyer´s fees in the corporate
reorganization with Bematech, totaling R$5.895 million; (iv) the provision for impairment relating to the acquisition of
Ciashop; and (v) the write-off of provision for obligations related to acquisitions in 3Q15, amounting to R$6.388 million.
Excluding these non-recurring events, EBITDA totaled R$398.733 million in 2015, with EBITDA margin of 21.8%.
The decline in EBITDA in 2015 was mainly due to: (i) the decrease in license fee revenue in the year; (ii) the higher
share of subscription sales, which add less revenue in the short term due to deferred revenue recognition; and (iii)
the lower allocation of implementation software teams; (iv) the IGP-M (inflation index used to adjust recurring
revenues) being significantly lower than IPC-A (inflation index closer to cost inflation) during 2015.
IGP-M recovered in the second half of 2015, but since inflation pass-through occurs on the anniversary of recurring
agreements based on the 12-month IGP-M, this recovery should contribute more significantly to the recurring revenue
growth in 2016.
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NET INCOME – TOTVS (excluding Bematech)
The steeper decline in net income than EBITDA in 4Q15 was largely due to the negative financial result in 4Q15, as
a result of: (i) the increase in gross debt, due to the inflow of R$181.055 million in 3Q15 from the BNDES credit line
acquired in 2013; (ii) the reduction in financial income in the quarter due to the payment of R$473.585 million in cash
in the corporate reorganization with Bematech; and (iii) the adjustment of R$9.028 million (R$5.958 million net of the
effect of Income and Social Contribution Tax) to adapt the provision for premium due to non-conversion of debentures.
In addition to the non-recurring events in 4Q15 already mentioned, net income in 2015 was also negatively affected
in the amount of R$3.638 million by the 12-month amortization of intangible assets resulting from the purchase price
allocation of Virtual Age in 2Q15, as commented in the section “Other Operating Expenses”. Excluding these non-
recurring events, adjusted net income totaled R$251.285 million in 2015, with adjusted net margin of 13.7%.
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BEMATECH - OPERATING RESULTS
NET REVENUE AND CONTRIBUTION MARGIN BY BUSINESS – BEMATECH
Bematech’s net revenue increased 2.0% in the year and totaled R$433.994 million. This growth is mainly due to the
5.7% growth in software revenue and the 15.5% growth in services revenue.
The recurring software revenue grew 7.9% in 2015 and accounted for 94.4% of the total software revenue, compared
to 92.5 % in 2014. This growth is mailny due to the 13.0% growth of subscription revenue, driven mainly by: (i) the
growth of Bematech’s TEF solutions, to carry out financial transactions; (ii) the growth of subscription sales for the
hospitality sector; and (iii) the inorganic 6-month effect of Unum Tecnologia e Consultoria em Informática, acquired
in June 2014.
License fee revenues decreased 21.1% in 2015, resulting mainly from the migration of part of the sales pipeline to
the subscription model. Maintenance revenue grew 3.3%, mainly due to: (i) the adjustment of maintenance contracts,
mostly by the IGP-M inflation index; and (ii) the migration of part of the sales pipeline to new clients to the subscription
model, especially in the hospitality sector.
The software contribution margin of the year was 50.5%, versus 57.8% in 2014. This reduction is mainly due to the
inorganic 6-month effect of research and development expenses of Unum Tecnologia e Consultoria em Informática
and the non-capitalization of research and development expenses since October 2015.
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Services revenues increased 15.5% in 2015, and totaled R$43.971 million. This growth is mainly due to the growth
of implementation and support services for new clients in the hospitality and passenger transportation sectors.
Services contribution margin showed an increase of 440 basis points in the year, driven mainly by efficiency gains of
the service teams related to the hotels segment, after the restructuring promoted by Bematech in 2015.
Hardware revenue totaled R$268.001 million in 2015, versus to R$ 272.103 million in 2014. The reduction in hardware
revenue in the period is mainly due to: (i) the downturn in economic activity in Brazil, which caused a longer period
of conversion of the sales pipeline, and the lower number of new establishments openings; and (ii) changes in tax
legislation, especially in São Paulo, where the fiscal printers were replaced by fiscal equipment S@T, which has
lower price and lower contribution margin.
As mentioned earlier in the "Pro-forma Net Revenue" section, the change in the tax legislation tends to collaborate
to the growth of the recurring revenue, reducing the share of non-recurring hardware revenue in the composition of
total revenue.
The hardware result decreased by 23.8% in 2015 and 34.1% in 4T15, when compared to the same period of the
previous year, mainly due to the US dollar appreciation against the Brazilian Real during 2015, not fully passed-
through to clients in the period. It is important to mention that TOTVS’ strategy is to gradually pass-through this impact
to sales prices.
The hardware result was also impacted by: (i) the increase in research and development, especially because of the
mainly due to the US dollar appreciation against the Brazilian Real, which impacted the development teams located
abroad; and (ii) the reduction of government subsidy revenue, established from 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.
The Decree 2,175/15 limited the tax credit used by companies in the sector at the end of the determination period
from September 2015 with the objective of not exceeding the total debts of the period, avoiding the accumulation of
recoverable taxes related to ICMS.
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OTHER OPERATING EXPENSES – BEMATECH
Selling expenses represented 14.7% of net revenue in the period, compared to 14.3% in 2014. The increase of this
expenses group over net income primarily reflects the increase in selling expenses and commissions, which
combined represented 11.2% of net revenue in 2015, versus 9.8% in 2014, mainly due to the sales team restructuring
promoted by Bematech in the period.
Allowence for doubtful accounts decreased 48.3% in the year, despite the increase in default levels seen in the
period, mainly due to the additional efforts of collection teams in order to recover credits accrued previously.
General and administrative expenses increased 7.8% in 2015, and totaled R$48.941 million. This growth is mainly
due to the non-recurring expenses related to the corporate reorganization with TOTVS in the amount of R$5.056
million, booked in 3T15.
Management fees decreased 29.3% in the year, mainly reflecting lower bonus provision related to the achievement
of financial and individual goals of executives in the period. Other Expenses line grew 63.1% in the period, and totaled
R$3.312 million in 2015, mainly due to the non-recurring provision for slow-moving inventory and obsolescence, in
the amount of R $ 2.053 million, made in 4T15.
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EBITDA – BEMATECH
The 2015 EBITDA was impacted by: (i) the additional costs with employee termination regarding the costs and
expenses structure adjustments promoted during the year, amounting R$4.362 million; (ii) bank and lawyer’s fees
regarding the corporate reorganization with TOTVS, in the amount of R$5.056 million; and (iii) the provision for slow-
moving inventory and obsolescence, in the amount of R$2.053 million, made in 4T15. Excluding these extraordinary
events, the EBITDA totaled R$58.180 million in 2015, with EBITDA margin of 13.4%.
The reduction in the EBITDA in 2015 was mainly the reduction of hardware and software contribution margins, as
commented on the "Net Revenue and Contribution Margin by Business" section, in addition to the lower margin of
Unum and the IGP-M level relevantly lower than IPC-A in 2015.
NET INCOME – BEMATECH
In addition to the extraordinary events already mentioned in the EBITDA session, net income for 2015 was also
negatively impacted by higher financial expenses booked in the year, mainly due to the increase in Bematech´s gross
debt. Excluding these extraordinary events that impacted EBITDA, net income totaled R$ 31.794 million in 2015, with
a net margin of 7.3%.
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CASH FLOW AND DEBT (PRO FORMA)
FLUXO DE CAIXA E DÍVIDA LÍQUIDA
Net Debt totaled R$451.925 million in 4Q15, equivalent to 1x pro forma Adjusted EBITDA in 2015.
Gross Cash decreased R$492.019 million in the quarter mainly due to: (i) the operating cash generation of R$38.581
million; (ii) the payment of R$473.586 million to Bematech’s former shareholders regarding the corporate
reorganization with TOTVS; (iii) the partial amortization of the principal of the BNDES financing line contracted by
TOTVS in 2013; (iv) the partial amortization of principal amount of the debentures of Bematech issued in 2014,
amounting to R$7.466 million.
In 2015, gross cash decreased R$389.005 million, chiefly due to: (i) the operating cash generation of R$339.618
million; (ii) the investment of R$52.303 million in fixed assets; (ii) the payment of R$473.586 million to Bematech’s
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former shareholders regarding the corporate reorganization with TOTVS; (iv) the payments of R$204.331 million as
interest on equity and dividends during 2015 to shareholders of TOTVS and Bematech; (v) the payment of R$34.211
million related to share buyback carried out by TOTVS and Bematech during the year, net of sales; and (iv) the inflow
of R$181.055 million from the BNDES financing line contracted by TOTVS in 2013.
GROSS DEBT
Pro forma Gross Debt (loans + financing + debentures + obligations on acquisition of investments net of securities)
totaled R$878.340 million in 4Q15, versus R$904.095 million in 4Q14. The increase in gross debt is mainly due to
the inflow of the BNDES financing line contracted by TOTVS in 2013. The Company’s Gross Debt will be amortized
by 2020, of which R$246.436 million will be amortized in 2016.
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DIVIDENDS
On March 15, 2016, the Board of Directors approved the proposal for dividend distribution to be submitted to the
General Shareholders’ Meeting on April 26, 2016. The proposal sets forth the distribution of R$66.579 million in
dividends for the fiscal year 2015, resulting in a dividend per share of R$0.407365448. Considering the total proposed
dividends (sum of interest on equity and dividends), the Company will pay R$127.094 million, or R$0.778333438 per
share, for fiscal year 2015, which represents a payout of 65.0%.
The total proposed dividend per share is 23.8% less than the total dividend for the fiscal year 2014, mainly due to the
reduction of 25.5% of net income per share for fiscal year 2015.
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OWNERSHIP BREAKDOWN
TOTVS’ capital stock at the end of 4Q15 was R$541.374 million, versus R$526.592 million in 3Q15. The increase in
capital stock during the quarter was due to the issue of 2,170,656 TOTVS common shares as part of the corporate
reorganization with Bematech, which resulted in an increase in shareholders’ equity by R$82.486 million, of which
R$14.782 million was allocated to capital stock and R$67.703 million to capital reserve.
At the end of 4Q15, the Company’s capital stock was composed of 165,637,727 common shares, with 67.1% being
free float, of which 96.2% was held by institutional investors and 92.1% of foreign investors.
Free float is calculated as the total number of Company shares, excluding shares owned by the management and
related persons, Fundação Petrobras de Seguridade Social (PETROS) and BNDES Participações (BNDESPar) and
those held in treasury.
TOTVS closed 4Q15 with 2,199,275 shares held in treasury, which correspond to 1.3% of total common shares. It is
worth pointing out that the Board of Directors approved a new share buyback program on September 28, 2015, for
a term of 365 days, during which up to 1,600,000 shares can be acquired, and approved the new trading policy of
securities on December 18, 2015, which, among other items, prohibits the Company to trade shares during 15
calendar days before the end of each quarter until its results are disclosed to the market. Thus, the Company is not
allowed to conduct the current share buyback program until May 4, 2016.
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 21st 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. The words "anticipate", "desire", "expect", "foresee", "intend", "plan", "predict", "project", “aim” and similar words are intended to 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, acceptance of products by the market, market performance of the Company's and its competitors’ products, regulatory approval, currency fluctuations, difficulties in supply and production and changes in product sales, among others. 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 updated to the present date and TOTVS is under no obligation to update it further to include new information and/or future developments.
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ATTACHMENT III – CONSOLIDATED INCOME STATEMENT
PRO-FORMA (TOTVS + BEMATECH) – RECONCILIATION 2014