1Q15 - EARNINGS RELEASE

Transcription

1 IR CONTACTS Gilsomar Maia (IRD) Phone: +55 (11) Investor Relations Phone: +55 (11) / 7773 ri@totvs.com São Paulo, May 6, TOTVS S.A. (BM&FBOVESPA: TOTS3), the leading developer of integrated enterprise management software, as well as business and technology platforms in Brazil and Latin America, announces today its results of the first quarter of 2015 (1Q15). 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). 1Q15 - EARNINGS RELEASE Net Revenue: R$459.0 million in 1Q15 (+6.3% vs. 1Q14) and R$1,800.0 million in LTM-1Q15 (+7.8% vs. LTM- 1Q14). Recurring Revenue: R$278.4 million in 1Q15 (+11.1% vs. 1Q14) and R$1,076.7 million in LTM-1Q15 (+10.6% vs. LTM-1Q14). Subscription Revenue: R$30.6 million in 1Q15 (+47.0% vs. 1Q14) and R$114.0 million in LTM-1Q15 (+42.2% vs. LTM-1Q14). Addition of subscription clients: 816 clients in 1Q15 (+47.3% vs. 1Q14) and 3,026 clients in LTM-1Q15 (+51.2% vs. LTM-1Q14). EBITDA: R$114.9 million in 1Q15 (+8.0% vs. 4Q14), with net margin of 25.0% (+160 bps vs. 4Q14). Net Income: R$70.9 million in 1Q15 (+15.1% vs. 1Q14), with net margin of 15.4% (+110bps vs. 1Q14). Earnings per share: R$0.44 in 1Q15 (+15.9% vs. 1Q14) and R$1.67 in LTM-1Q15 (+17.0% vs. LTM-1Q14). Net Operating Cash Generation: R$84.7 million in 1Q15 (+40.3% vs. 1Q14) and R$356.4 million in LTM-1Q15 (+23.5% vs. LTM-1Q14). Financial Highlights LTM Net Revenue 458, , % 455, % 1,799,545 1,669, % EBITDA 114, , % 106, % 437, , % EBITDA Margin 25.0% 26.5% -150 bp 23.4% 160 bp 24.3% 25.1% -80 bp Net Income 70,900 61, % 69, % 272, , % Net Margin 15.4% 14.3% 110 bp 15.2% 20 bp 15.1% 13.9% 120 bp Earnings per Share % % % CONFERENCE CALL - PORTUGUESE: May 7, 2015, 10:30 a.m. (Brasília) Webcast: click here Telephone: +55 (11) , +55 (11) (access code: TOTVS) Replay: +55 (11) , +55 (11) (access code: ) until May 13, 2015 or on the website ri.totvs.com.br CONFERENCE CALL - ENGLISH: May 7, 2015, 12:00 p.m. (Brasília) Webcast: click here Telephone: US Toll Free +1(888) / International +1(786) / Brazil +55 (11) , +55 (11) (access code: TOTVS) Replay: +55 (11) , +55 (11) (access code: ) until May 13, 2015 or on the website ir.totvs.com.br 1

2 MESSAGE FROM THE MANAGEMENT This quarter, TOTVS increased its subscription sales in 47.0% year on year, adding 816 subscription clients. Despite the revenue deferral from sales under the subscription model, recurring revenues increased 11.1% in the quarter, reached almost 61% of the total revenues this quarter, and the net income grew 15.1%. In addition to the revenue deferral, there were some other challenges in costs management, such as: (i) the lower incremental licenses from the corporate model, caused by the economic slowdown in 2014; and (ii) the cost inflation higher than recurring revenue inflation update (wage increase of 7.0% in São Paulo vs. the average IGP-M update on recurring revenue of 3.8%). Despite these challenges, the EBITDA margin was 25.0%, 160 basis points higher in a quarter on quarter comparison. This combination of higher relevance of subscription model with the maintenance of operating profitability proves that the Company continues to seek sustainable growth, without losing sight of the costs and expenses discipline. RECENT EVENTS ACQUISITION OF NEOLOG On February 11, 2015, TOTVS acquired 60% of the capital stock of Neolog Consultoria e Sistemas S.A. for R$15.6 million. With Neolog, TOTVS reinforces its strategy of specialization and its position in the logistics segment by adding the know-how built over more than 10 years, which is reflected in the portfolio of solutions (SaaS) for logistics optimization in order to reduce costs and better match resources for clients throughout the whole supply chain. LAUNCH OF FLY01 IN PARTNERSHIP WITH REDECARD To expand penetration in the microenterprise market, in February 2015, TOTVS and Redecard S.A. ( Rede ) entered into a partnership to offer micro and small businesses the Fly01 platform, a comprehensive, cloud-based management solution available through monthly subscriptions, which has no need for investments in infrastructure, as it is sold in the form of apps available at the platform store. The Fly01 platform is available on the market initially through three complementary offerings: (i) the e-commerce solution from CiaShop (a company acquired by TOTVS in 2013), which enables entrepeneurs to set up a virtual store in few minutes, already enabled to use Rede s means of payment (debit and credit cards, bank payment slips); (ii) the TOTVS Série 1 management system, with automatic reconciliation of receivables originating from Rede s system; and (iii) as from June 2015, mobile POS (point-of-sales solutions) that will allow entrepreneurs to get a consolidated view of their business in both the virtual and physical stores. For more details about Fly01, visit: (Portuguese only). 2

3 SALE OF MINORITY INTEREST IN umov.me On April 2, 2015, TOTVS Ventures (a TOTVS subsidiary) sold its 20% minority interest in umov.me Tecnologia S.A. ( umov.me ) to the founding shareholders of umov.me for R$1.6 million, rescinding all the future investment commitments of TOTVS Ventures established at the time of acquisition of said interest in umov.me. The termination of this investment did not end the partnership between TOTVS and umov.me, which remains one of the mobility solutions in TOTVS portfolio. NEW SHARE BUYBACK PROGRAM On February 27, 2015, the Board of Directors approved the new TOTVS share buyback program, in effect for 365 days from March 2, 2015, during which up to 1.6 million shares, equivalent to 1.0% of the total shares, may be repurchased. The repurchased shares can be used to meet the demands resulting from the exercise of stock options as part of the Company s Share-Based Incentive Plan, or can be canceled, sold and/or held in treasury. It is important to mention that the previous share buyback program, approved by the Board of Directors on July 28, 2014, was concluded in December 2014, during which 1.4 million shares, corresponding to the program limit of 0.9% of the total shares, were repurchased. PAYMENT OF DIVIDENDS The Ordinary and Extraordinary Shareholders Meeting held on March 30, 2015, approved the distribution of dividends of R$ million (R$0.77 per share), related to fiscal year 2014, which were paid to shareholders on April 15, This dividend amount, added to interest on equity paid on August 20, 2014 and January 14, 2015, resulted in a total of R$ million (R$1.02 per share), which corresponds to a payout ratio of 63% in CHANGE IN THE BOARD OF DIRECTORS On March 13, 2015, Mr. Luís Carlos Fernandes Afonso, former CEO of Petros Fundação Petrobras de Seguridade Social, submitted his resignation from the Board of Directors of TOTVS. On May 4, 2015, the Board of Directors convened an Extraordinary Shareholders Meeting to be held on June 10, 2015, to deliberate on the candidature of Mr. Danilo Ferreira da Silva, CFO of Petros, to replace Mr. Luís Carlos on the Board of Directors. For more information on the convening of the Extraordinary Shareholders Meeting and the resume of Mr. Danilo Ferreira da Silva, visit ri.totvs.com.br. 3

4 COLLECTIVE BARGAINING AGREEMENT IN SÃO PAULO On January 30, 2015, Seprosp, the São Company state IT companies association, and Sindpd, the São Paulo state IT employees union, signed a collective bargaining agreement that fixed a 7.0% wage increase with effect from January 1, 2015, for IT sector employees in the state of São Paulo, which accounts for around 45% of the payroll of TOTVS. CHANGE IN BRASIL MAIOR PLAN As part of the fiscal adjustments to public accounts being made by the Brazilian Government, on March 20, 2015, the government sent to the country s National Congress Bill N 863/15 (Projeto de Lei N 863/15), which proposes, among others, the following changes to the Brasil Maior Plan: (i) elimination of the mandatory employer social security contribution (INSS) on gross revenue to allow said contribution to be charged once again on payroll (20% of remuneration); and (ii) increase in the rate of said contribution from 2.0% to 4.5% for IT sector taxpayers that choose to continue with the social security contribution on gross revenue. We credit the Brasil Maior Plan for much of the improvement noticed in the IT industry in recent years as it encourages local development of technology and reduces the informal employment conditions, which has, in fact, resulted in higher tax collections from the sector in 2013 than in 2011, the year the Plan was rolled out. We are awaiting the decision of the congress to make a conclusive evaluation of the matter. The law comes into effect 90 days after the President s approval. For more information on the impacts of the Brasil Maior Plan on the IT industry, read the study conducted by the Brazilian Information Technology and Communication Companies Association (Brasscom), available at: NEW TAX ON FINANCIAL REVENUE Also as part of the fiscal adjustment to public accounts, the Brazilian Government published on March 1, 2015, the Presidential Decree No. 8426/15, which stipulates that financial revenue earned as from July 1, 2015 will be taxed at 4.65% (PIS 0.65% and COFINS 4.00%). 4

5 CONSOLIDATED OPERATING AND FINANCIAL PERFORMANCE NEW EARNINGS DISCLOSURE STANDARD As mentioned throughout 2014, we are providing new revenue and cost breakdowns starting from 1Q15 to facilitate the understanding of the software and service performance, as well as recurring and non-recurring revenue: 1. Subscription Revenue comprises all revenues related to commercial models in which there is no ownership transferring of license fees. The amounts shown in this line were mainly reclassified from the License Fee revenue line and, to a lesser extent, from the Maintenance and Service revenue lines. 2. Cost of support reflects the cost of activities related to software technical support provided to clients who pay maintenance and/or subscription fees. Until 4Q14, these costs were part of Cost of Services. To maintain comparability, the above reclassifications were made to the 2013 and 2014 results, which are available in the section Investor Services > Fundamentals and Spreadsheets of the TOTVS Investor Relations website (ri.totvs.com.br). We have also renamed the Cost of License Fees line as Cost of Software to better reflect the costs involved in this item, which are related to the costs with partners solutions that are sold through both the licensing and subscription models. With the reclassifications described above, following are the visions of margin contribution by each business: Software Result (=) Software Revenue (-) Software Costs and Expenses Software Revenue (=) License Fees (+) Maintenance (+) Subscription Software Costs and Expenses (=) Cost of Software (+) Cost of Support (+) Research and Development Expenses Services Result (=) Service Revenue (-) Cost os Services 5

6 NET REVENUE Total Net Revenue LTM By Business Software 326, , % 322, % 1,274,827 1,184, % Services 132, , % 133, % 524, , % Net Revenue 458, , % 455, % 1,799,545 1,669, % By Nature Recurring 278, , % 270, % 1,076, , % Non Recurring 180, , % 185, % 722, , % Net Revenue 458, , % 455, % 1,799,545 1,669, % The revenue breakdown per business line in 1Q15 shows that software, the core business of the Company, accounted for 71.2% of the revenue in the quarter. In the last 12 months, revenue from software accounted for 70.8% of total revenue. Services in 1Q15 grew in line with the performance of the last 12 months. The 0.6% decrease in comparison with 4Q14 is mainly due to the less working days in the first quarter. Average service revenue per working day grew 1.6% quarter on quarter and 11.4% year on year. In terms of nature, note that recurring revenues accounted for 60.7% of total revenue in 1Q15, the highest level of recurrence ever registered by the Company in a quarter. Of this total, 91.6% is recurring software revenue, corresponding to 75.0% of total software revenue in 1Q15. In all, recurring software revenue grew 11.0% between 1Q14 and 1Q15, which corresponds to 270 basis points above the growth of the service revenue in the period. Software Revenue LTM Software Revenue 326, , % 322, % 1,274,827 1,184, % Non Recurring 71,419 79, % 76, % 290, , % License Fees 71,419 79, % 76, % 290, , % Recurring 255, , % 245, % 984, , % Maintenance 224, , % 216, % 870, , % Subscription 30,611 20, % 28, % 114,017 80, % Maintenance revenue accounted for 80.6% of total recurring revenue and for 88.0% of recurring revenue from software in 1Q15. The year on year growth of 7.4% in maintenance revenue in 1Q15 is 1.9 percentage points higher than the 12 month accumulated IGP-M index (inflation index used in most of the maintenance agreements) average of last year. 6

7 Subscription Revenue LTM Subscription Revenue 30,611 20, % 28, % 114,017 80, % Number of Clients Added % % 3,026 2, % Average Subscription / New % % % Subscription revenue in 1Q15 grew 47.0% year on year, with 816 new subscription clients added, growing 47.3% from 1Q14. In 1Q15, subscription revenue already accounted for 12.0% of total recurring revenue from software, compared to 9.1% in 1Q14. The growth in this revenue line accounted for 38.8% of the growth in recurring revenue from software between 1Q14 and 1Q15. The drop of 23.6% in license sales to new clients (see table below) is mainly related to the decline in economic activity in Brazil and the transfer of TOTVS sales pipeline to acquired companies in the last two years, whose proportional contribution to recurring revenues is higher. License Fees LTM License Fees Revenue 71,419 79, % 76, % 290, , % to New Clients Added 18,408 24, % 27, % 92,783 98, % to Existing Clients 53,011 55, % 49, % 197, , % Number of New Sales 2,588 2, % 2, % 10,496 11, % to New Clients Added % % 2,799 3, % to Existing Clients 2,075 2, % 1, % 7,697 8, % Licensing Average Ticket % % % of New Clients Added % % % of Existing Clients % % % The decrease of 4.6% in revenue from license fees from existing clients in 1Q15 was due to the lower incremental licenses from the corporate model, which were 12.4% lower in quarter on quarter comparison, as shown in the chart. Other sales of license fees to existing clients remained stable in the period. In the corporate model, clients have unlimited 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 year. Thus, this reduction is a consequence of the lower growth of the clients under the corporate model in Revenues from acquired companies, which were not consolidated in 1Q14 (Virtual Age and Neolog), totaled R$10.8 million in 1Q15, of which R$8.5 million are recurring revenues. As mentioned in previous quarters, part of the growth of these acquired companies is organic, since TOTVS transfers opportunities from its sales pipeline to the acquired companies. 7

8 CONTRIBUTION MARGIN BY BUSINESS Software Result LTM Software Revenue 326, , % 322, % 1,274,827 1,184, % Cost of Software (17,125) (18,338) -6.6% (22,276) -23.1% (81,230) (72,687) 11.8% Cost of Support (24,855) (19,565) 27.0% (22,450) 10.7% (89,699) (69,325) 29.4% Research and Development (62,911) (57,206) 10.0% (63,408) -0.8% (246,095) (223,829) 9.9% Software Result 221, , % 214, % 857, , % Software Contibution Margin 67.9% 69.3% -140 bp 66.5% 140 bp 67.3% 69.1% -180 bp The decrease of 140 basis points in software contribution margin between 1Q14 and 1Q15 is mainly concentrated in cost of support and in research and development expenses. As a ratio of software revenue, these two lines combined increased from 24.8% in 1Q14 to 26.9% in 1Q15. Said increase was mainly due to: (i) the transition to the subscription model, given that subscription revenue has a time-deferral effect that does not affect these costs and expenses; (ii) the inorganic impact of Virtual Age and Neolog; and (iii) wage increases in the period. Between 4Q14 and 1Q15, software contribution margin increased 140 basis points, mainly due to: (i) higher research and development expenses in 4Q14, due to additional expenses from layoffs s accumulated throughout 2014; (ii) retroactive effects on provisions for vacation and Christmas bonus (13 th salary) resulting from wage increases in 4Q14; and (iii) the reduction in software costs due to the lower share of partner solutions in the sales mix in the period. Services Result LTM Services Revenue 132, , % 133, % 524, , % Cost of Services (112,675) (101,277) 11.3% (118,820) -5.2% (443,705) (410,412) 8.1% Services Result 19,733 20, % 14, % 81,013 74, % Services Contibution Margin 14.9% 17.2% -230 bp 10.8% 410 bp 15.4% 15.4% 0 bp The decrease of 230 basis points in the services contribution margin between 1Q14 and 1Q15 was mainly due to the cost of services on account of the wage increases under collective bargaining agreements, already described in the section on software contribution margin. The increase of 410 basis points in service contribution margin between 4Q14 and 1Q15, despite the 7.0% wage increase under the collective bargaining agreement signed in the state of São Paulo in 1Q15, was essentially due to: (i) additional expenses from layoffs in 4Q14; and (ii) retroactive effects on provisions for vacation and Christmas bonus (13 th salary) resulting from wage increases in 4Q14. 8

9 OTHER OPERATING EXPENSES Commercial Expenses LTM Selling Expenses (35,305) (31,596) 11.7% (32,358) 9.1% (135,450) (113,390) 19.5% Commissions (40,316) (40,932) -1.5% (37,118) 8.6% (154,370) (157,294) -1.9% Subtotal (75,621) (72,528) 4.3% (69,476) 8.8% (289,820) (270,684) 7.1% % of Net Revenue 16.5% 16.8% -30 pb 15.2% 130 pb 16.1% 16.2% -10 pb Allowance for Doubtful Accounts (8,098) (7,910) 2.4% (6,252) 29.5% (27,753) (28,433) -2.4% Marketing and Advertising (8,381) (5,719) 46.5% (10,339) -18.9% (44,101) (44,508) -0.9% Commercial Expenses (92,100) (86,157) 6.9% (86,067) 7.0% (361,674) (343,625) 5.3% % of Net Revenue 20.1% 19.9% 20 bp 18.9% 120 bp 20.1% 20.6% -50 bp As a ratio of net revenue, selling and commission expenses combined decreased 30 basis points between 1Q14 and 1Q15. Compared to 4Q14, these expenses increased 130 basis points, mainly due to: (i) investments in training the sales team to sell offerings under the subscription model; and (ii) the change in the sales mix, both between franchises and own branches, and based on size of clients, which have a corresponding impact on commissions. As a percentage of net revenue, allowance for doubtful accounts grew 40 basis points in 1Q15 compared to 4Q14, to reach 1.8% of total net revenue, the same level as in 1Q14. In the last year, the Company made amendments to its credit policy and kept the efforts to recover provisioned credit losses, which led this line to 1.5% in the last 12 months. The Company will continue these efforts during the course of As a percentage of net revenue, advertising and marketing expenses increased 50 basis points year on year and decreased 50 basis points quarter on quarter. The oscillations in these expenses are mainly due to their atypical distribution of expenditures in 2014 due to the soccer World Cup in Brazil. 9

10 Administrative and Other Expenses LTM General and Administrative (29,283) (26,903) 8.8% (28,251) 3.7% (116,756) (100,723) 15.9% Management Fees (5,721) (8,277) -30.9% (6,870) -16.7% (23,493) (29,793) -21.1% Other Expenses % (1,103) % 404 (280) % Administrative and Other Expens (34,364) (35,099) -2.1% (36,224) -5.1% (139,845) (130,796) 6.9% % of Net Revenue 7.5% 8.1% -60 bp 7.9% -40 bp 7.8% 7.8% 0 bp General and administrative (G&A) expenses increased by 8.8% year on year and 3.7% quarter on quarter, mainly influenced by the collective bargaining agreement in São Paulo and by the merger of the administrative teams of companies acquired in the period. Management Fees decreased by 30.9% year-on-year and 16.7% quarter-on-quarter, mainly due to the provisioning for bonus linked to financial and individual targets of executives, and to the provisioning for the stock option plan. The decrease in other expenses compared to 4Q14 is explained by the provision for impairment of R$1.6 million related to the minority interest in umove.me, as mentioned in 4Q14. This stake was sold in 1Q15, as commented in the Recent Events section. Depreciation and Amortization Expenses 1Q15 1Q14 LTM Depreciation (6,078) (5,452) 11.5% (5,648) 7.6% (22,455) (20,037) 12.1% Amortization (15,407) (15,266) 0.9% (17,875) -13.8% (67,240) (61,677) 9.0% Depreciation and Amortization (21,485) (20,718) 3.7% (23,523) -8.7% (89,695) (81,714) 9.8% % of Net Revenue -4.7% -4.8% 10 bp -5.2% 50 bp -5.0% -4.9% -10 bp Depreciation and amortization totaled R$ million in the quarter, of which R$6.078 million referred to depreciation of fixed assets and R$ million to amortization of intangible assets. EBITDA AND NET INCOME EBITDA and Net Income LTM Net Income 70,900 61, % 69, % 272, , % Net Margin 15.4% 14.3% 110 pb 15.2% 20 pb 15.1% 13.9% 120 pb Equity Pickup (75) (301) -75.1% (124) -39.5% (357) (797) -55.2% Income Tax and Social Contribution (37,138) (29,515) 25.8% (22,698) 63.6% (105,083) (97,426) 7.9% Financial Result 14,657 (2,078) % 8, % 29,917 (6,020) % Depreciation and Amortization (21,485) (20,718) 3.7% (23,523) -8.7% (89,695) (81,714) 9.8% EBITDA 114, , % 106, % 437, , % EBITDA Margin 25.0% 26.5% -150 bp 23.4% 160 bp 24.3% 25.1% -80 bp EBITDA margin in 1Q15 came to 25.0%, down 150 basis points from 1Q14. The decrease in EBITDA margin yearon-year was mainly due to the lower contribution margin from the Software and Services business segments (see Contribution Margin by Business ). The increase of 160 basis points of the EBITDA margin when compared to 1Q14 was mainly due to the recovery of the businesses contribution margins and to the lower representativeness of the administrative expenses as a percentual of the net revenue. 10

11 The EBITDA margin management in this quarter also involved the following additional challenges: (i) cumulative 12- month average inflation measured by the IGP-M of 3.8% in 1Q15, compared to the average 12-month inflation measured by the IPC-A of 7.5% in the quarter; (ii) wage increase of 7.0% under the collective bargaining agreement in São Paulo; (iii) 12.4% decline in the incremental license fees of corporate model. Net income came to R$ million in the quarter, growing 15.1% from the same period in the previous year, with net margin of 15.4%, an increase of 110 basis points from 1Q14. In the last 12 months, net income grew 16.9%, or 12.5 percentage points above EBITDA growth, with net margin of 15.1%, an increase of 120 basis points from the LTM-1Q14. Net income outgrew EBITDA due to the following factors: (i) positive financial result of R$ million in 1Q15, compared to a negative financial result of R$2.078 million in 1Q14; and (ii) lower growth of depreciation and amortization expenses. The positive financial result was due to a combination of: (i) higher financial revenue, driven by the higher balance of financial investments; (ii) lower financial expenses year on year, mainly due to the non-recurring adjustment of the debentures interest on 1Q14, amounting R$2.807 million; and (iii) the result from the sale of minority interest in ZeroPaper in January

12 The increase in the effective tax rate was due to: (i) the adjustment to the provision for income tax of 2014 related to subsidiaries; and (ii) the smaller share of research and development projects eligible for Lei do Bem in relation to EBT (earnings before taxes). CASH FLOW AND NET DEBT Net cash position at the end of 1Q15 stood at R$ million, up R$ million from net cash at the end of 4Q14. Cash and Equivalents position increased R$ million, driven primarily by: (i) operating cash generation of R$ million, equivalent to 119.5% of the net income in the quarter; (ii) investments of R$ million in fixed assets, mainly in machinery and equipment; (iii) payment of R$ million for acquisitions, including the acquisition of Neolog and the payment of installments for previous acquisitions; (iv) payment of R$ million of Interest on Equity (IOE) related to 2014; and (v) proceeds of R$4.005 million from the sale of treasury stock to beneficiaries of the stock option plan. The R$ million increase in Gross Debt (loans + financing + debentures + net liabilities from investment acquisition) was mainly due to higher liabilities from acquisitions and the provisioning of interest related to financing lines and debentures. 12

13 OWNERSHIP BREAKDOWN TOTVS closed 1Q15 with capital stock of R$ million, divided into 163,467,071 common shares, with a 67.1% free-float. The 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), BNDES Participações (BNDESPar), and treasury stock. In 1Q15, 96.3% of the free float consisted of institutional investors and 91.6% by foreign investors. Shareholder (In % of the Free float) 1Q15 4Q14 3Q14 2Q14 1Q14 Non-Institutional Investor 3.7% 3.6% 3.5% 3.6% 3.9% Institutional Investor 96.3% 96.4% 96.5% 96.4% 96.1% TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% National Investor 8.4% 9.2% 10.4% 10.2% 12.2% International Investor 91.6% 90.8% 89.6% 89.8% 87.8% TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% ABOUT TOTVS Top provider of management software, platforms and consulting services for businesses of all sizes, one of the largest ERP Suite providers in the world, the leader in Latin America and with over 50% market share in Brazil, TOTVS is considered the 22 nd most valuable brand in Brazil, according to BrandAnalytics. TOTVS is present in 39 countries through its branch offices, franchises and development centers. TOTVS has five branch offices, 52 franchises and nine development centers in Brazil, and three branch offices, 15 franchises and two development centers abroad, in the United States and Mexico. For further information, visit 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. 13

14 CONSOLIDATED INCOME STATEMENT LTM Net Revenue License Fees 71,419 79, % 76, % 290, , % Maintenance 224, , % 216, % 870, , % Subscription 30,611 20, % 28, % 114,017 80, % Services 132, , % 133, % 524, , % 458, , % 455, % 1,799,545 1,669, % Operating Costs Cost of Software (17,125) (18,338) -6.6% (22,276) -23.1% (81,230) (72,687) 11.8% Cost of Support (24,855) (19,565) 27.0% (22,450) 10.7% (89,699) (69,325) 29.4% Cost of Services (112,675) (101,277) 11.3% (118,820) -5.2% (443,705) (410,412) 8.1% (154,655) (139,180) 11.1% (163,546) -5.4% (614,634) (552,424) 11.3% Gross Income 304, , % 292, % 1,184,911 1,117, % Operating Expenses Research and Development (62,911) (57,206) 10.0% (63,408) -0.8% (246,095) (223,829) 9.9% Selling (35,305) (31,596) 11.7% (32,358) 9.1% (135,450) (113,390) 19.5% Commissions (40,316) (40,932) -1.5% (37,118) 8.6% (154,370) (157,294) -1.9% Allowance for Doubtful Accounts (8,098) (7,910) 2.4% (6,252) 29.5% (27,753) (28,433) -2.4% Marketing and Advertising (8,381) (5,719) 46.5% (10,339) -18.9% (44,101) (44,508) -0.9% General and Administrative (29,283) (26,903) 8.8% (28,251) 3.7% (116,756) (100,723) 15.9% Management Fees (5,721) (8,277) -30.9% (6,870) -16.7% (23,493) (29,793) -21.1% Others % (1,103) % 404 (280) % (189,375) (178,462) 6.1% (185,699) 2.0% (747,614) (698,250) 7.1% EBITDA 114, , % 106, % 437, , % Ebitda Margin 25.0% 26.5% -150 bp 23.4% 160 bp 24.3% 25.1% -80 bp Depreciation and Amortization (21,485) (20,718) 3.7% (23,523) -8.7% (89,695) (81,714) 9.8% Earnings Before Interest and Taxes (EBIT) 93,456 93, % 82, % 347, , % Financial Result Financial Revenue 32,733 17, % 21, % 86,111 48, % Financial Expense (18,076) (19,708) -8.3% (12,773) 41.5% (56,194) (54,961) 2.2% 14,657 (2,078) % 8, % 29,917 (6,020) % Equity Pickup (75) (301) -75.1% (124) -39.5% (357) (797) -55.2% Earning Before Taxes (EBT) 108,038 91, % 91, % 377, , % Income and Social Contribution Current (32,845) (25,697) 27.8% (31,306) 4.9% (104,105) (90,562) 15.0% Deferred (4,293) (3,818) 12.4% 8, % (978) (6,864) -85.8% (37,138) (29,515) 25.8% (22,698) 63.6% (105,083) (97,426) 7.9% Net Income 70,900 61, % 69, % 272, , % Net Margin 15.4% 14.3% 110 bp 15.2% 20 bp 15.1% 13.9% 120 bp Earnings per Share (EPS) % % % 14

15 CONSOLIDATED BALANCE SHEET (R$ thousands) 1Q15 1Q14 (1Q15/4Q14) ASSETS Current assets Cash and cash equivalents 733, , % 697, % Marketable securities 42,532 14, % 35, % Accounts receivable 476, , % 448, % Allowance for doubtful accounts (64,584) (44,686) 44.5% (58,864) 9.7% Recoverable taxes 6,876 5, % 6, % Other current assets 25,955 20, % 27, % 1,221, , % 1,156, % Non-current assets Long-term assets Accounts receivable 34,813 36, % 40, % Marketable securities 59,766 62, % 70, % Deferred income tax and social contribution 48,188 45, % 57, % Judicial deposits 23,122 15, % 22, % Other receivables 18,024 18, % 18, % Financial assets at fair value 55,907 36, % 46, % Permanent assets Property, plant and equipment 83,905 71, % 79, % Intangible assets 674, , % 652, % 998, , % 987, % - TOTAL ASSETS 2,219,258 1,841, % 2,143, % LIABILITIES Current liabilities Suppliers 40,048 29, % 35, % Loans and financing 26,694 29, % 25, % Debentures 33,973 1, % 33, % Taxes payable 12,187 8, % 13, % Salaries and social charges payable 108, , % 111, % Commissions payable 60,988 60, % 58, % Dividends payable 125, , % 47, % Obligation relating to acquisitions 53,370 21, % 51, % Other liabilities 2,427 3, % 2, % 463, , % 379, % Non-current liabilities Loans and financing 457, , % 457, % Debentures 82, , % 79, % Provision for invetment losses 1, % % Taxes payable - 1, % 1, % Provision for contingencies 10,807 7, % 12, % Obligation relating to acquisitions 91,062 75, % 88, % Other liabilities 6,053 2, % 6, % 649, , % 646, % Shareholders' equity Capital 526, , % 526, % Treasury stock (47,573) (15,177) 213.5% (52,212) -8.9% Capital reserve 92,668 96, % 92, % Income reserve 522, , % 549, % Other comprehensive income 9,880 (4,131) % % Minority interests 1,843 2, % 1, % 1,106,235 1,022, % 1,118, % TOTAL LIABILITIES AND EQUITY 2,219,258 1,841, % 2,143, % 15

16 CONSOLIDATED CASH FLOW LTM Net income before taxes 108,038 91, % 91, % 377, , % Adjustments: Depreciation and amortization 21,485 20, % 23, % 89,695 81, % Share-based payment % 1, % 5,490 5, % Gains on the sale of permanent assets (6,279) % 1, % (4,145) 2, % Allowance for doubtful accounts 8,098 7, % 6, % 27,753 28, % Equity pickup % % % Provision for contingencies and legal obligations related (1,711) % % 3,022 1, % Interest and monetary and exchange variations, net 2,974 10, % 3, % 17,526 23, % s in operating assets and liabilities: Trade accounts receivable (23,632) (31,741) -25.5% 8, % (57,161) (89,215) -35.9% Other assets 16, % 7, % 15,778 (4,618) % Judicial deposits (702) (819) -14.3% (1,726) -59.3% (7,687) (7,403) 3.8% Labor and social security liabilities (3,315) 3, % (24,476) -86.5% 4,331 9, % Taxes recoverable (427) 2, % % (1,104) 16, % Suppliers 4,517 (3,437) % 1, % 9,262 (4,980) % Commissions payable 2,417 3, % (2,665) % (577) 10, % Taxes payable (9,844) (13,374) -26.4% (14,242) -30.9% (52,350) (40,244) 30.1% Other accounts payable (2,054) (7,561) -72.8% 2, % 1,060 (3,770) % Cash flow provided by operation 117,088 84, % 106, % 428, , % Interest paid (7,543) (6,535) 15.4% (3,232) 133.4% (23,237) (21,635) 7.4% Income tax and social contribuition paid (24,831) (17,492) 42.0% (11,869) 109.2% (48,779) (51,855) -5.9% Net cash provided by operating activities 84,714 60, % 91, % 356, , % Increase intangible assets (30,157) (37,321) -19.2% (1,141) % (91,634) (122,492) -25.2% Sale (Acquisition) of investments at fairvalue 7, ,971 (36,332) % Acquisition of subsidiary, net of cash (216) % - - (665) 14, % Value of fixed assets sale % % % Acquisition of fixed assets (10,403) (6,583) 58.0% (7,442) 39.8% (35,047) (29,434) 19.1% Net cash used in investing activities (33,411) (43,734) -23.6% (8,260) 304.5% (122,448) (174,065) -29.7% Payment of principal on loans and financing (199) (26,405) -99.2% (195) 2.1% (26,655) (70,406) -62.1% Receivables from related companies (260) % Dividends paid (19,421) (19,157) 1.4% - - (158,273) (118,667) 33.4% Loans , % 227, , % Paid in capital , % Stock Buyback 4,005 (5,010) % (29,417) % (41,629) (18,213) 128.6% Net cash used in financing activities (15,615) (50,572) -69.1% 197, % , % Increase (decrease) in cash and cash equivalents 35,688 (33,943) % 280, % 234, , % Cash and cash equivalents at the beginning of the period 697, , % 417, % 499, , % Cash and cash equivalents at the end of the period 733, , % 697, % 733, , % 16