Desktop – the internet provider that operates in the interior of São Paulo – has just announced triple-digit growth in top line and second-quarter EBITDA, figures that largely reflect the M&As strategy that has already doubled in size of the company since the IPO.
revenue grew 129% in the period, to R$ 169 million, with an EBITDA margin of 45% – one percentage point above the same quarter last year.
Net income was R$ 10 million, up 76%.
In addition to acquisitions, the company has also grown organically. From April to July, Desktop added 44,000 new customers to the base with organic growth alone – even though 25% of these new customers came from companies that Desktop acquired in the last 12 months.
“There are customers who came from other ISPs, but also many customers who came from Big Telcos, both cable and fiber,” CFO Bruno Leão told the Brazil Journal. “We have a value proposition that delivers more service for the same price as competitors, and that has worked very well.”
Desktop ended the second quarter with 711 thousand customers in its base, more than double what it had in the IPO, making it the third largest ISP in Brazil, behind Alloha Fibra (controlled by EB Capital) and Brisanet. Since then, the company has already made five acquisitions, including the purchase of Fasternet and IDC last month.
Until now, the company has only been in the interior of the state of São Paulo, but the CFO said that it has already started to look at assets in Minas Gerais and Paraná.
But M&As activity is expected to slow down in the coming months.
“We remain super excited about the inorganic growth avenue, but with the macro shift and the share price we are much more diligent,” said Bruno. “We had to renegotiate all the due diligence contracts that we had looked at back then and we are looking for assets that need less capital and that do not impact our leverage.”
The company closed the second quarter with leverage of 2.8x, considering EBITDA pro forma annualized. Net debt stands at R$850 million after Desktop made two debt issues in recent months totaling R$600 million.
One of the highlights of the second quarter was the company’s efficiency gain, which was reflected in the increase in the EBITDA margin. This gain came mainly from the maturation of markets in which the company recently entered.
“When we enter a new city we add a fixed cost straight away [a infraestrutura e marketing, por exemplo], but the recipe only comes later. As these markets mature, with more customers entering the base, this fixed cost is diluted and the margin grows,” said the CFO.
As Desktop is adding new cities as old ones mature, this positive effect is partly ‘offset’but the ‘net’ is positive, generating marginal growth in profitability, said Bruno.
Today, 45% of Desktop’s organic network is less than 12 months old.
Another part of the efficiency gain has to do with M&As synergies. Typically, when Desktop buys a provider from an inner city, that provider does not have a backbone that connects directly to the São Paulo PPP – from where the broadband is purchased. Therefore, he has to pay a third party for the use of the infrastructure.
Desktop already has a backbone that makes this connection, which immediately reduces the costs of this operation.