UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June 2020
Commission File Number: 001-38954
_____________________
LINX S.A.
(Exact Name as Specified in its Charter)
N/A
(Translation of registrant’s name into English)
Avenida Doutora Ruth Cardoso, 7,221
05425-902 São Paulo, SP
Federative Republic of Brazil
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F: ý Form 40-F: o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1)):o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7)):o
Linx S.A.
Interim financial information
March 31, 2020
with Review Report on the interim financial information
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Contents
Management’s report | 3 |
Review Report on the Interim Financial Information | 5 |
Statements of financial position | 7 |
Statements of income | 9 |
Statements of comprehensive income | 10 |
Statements of changes in equity | 11 |
Statements of cash flows | 12 |
Statements of value added | 13 |
Notes to interim financial information | 14 |
2
To our shareholders
The Management of Linx S.A. (“Linx”, “Company”) submits the Financial Statements for the periods ended March 31, 2020 (“1st quarter of 2020”, “1Q20”) to your appreciation compared to March 31, 2019 (“1st quarter of 2019”, “1Q19”).
Linx, present in the market for 35 years, is a leader in technologies for retail, using cloud, big data, artificial intelligence, among other innovations, to create a wide portfolio of transactional and performance solutions, which include management software (POS - point of sale and ERP - enterprise resource planning), SaaS (software as a service) with emphasis on Digital (OMS and e-commerce), financial services (TEF and sub-acquiring) and cross selling (NFCe and connectivity), among many others.
Since March 2020, several Brazilian states have been adopting measures of social distancing to flatten the population contamination curve by the new coronavirus, to prevent a possible collapse of the public health system. Most of these measures involve closing retail establishments not connected to essential services.
Given this scenario, the seasonal effect already expected in the first months of the year, due to the absence of commemorative dates, was intensified at the end of March with a sales volume approximately 50% lower among retailers using our platform. This way, the business model based on recurring revenue demonstrated Linx's resilience. In the second half of March, there was an increase in demand for delivery applications, e-commerce platform, stores integration with marketplaces, payment link and gateway offers. In addition, we continue to invest in our team and in innovation to guarantee Linx's future growth, something that generated greater pressure on profitability in the quarter. However, we believe to recover in the following quarters, also considering the initiatives adopted as of the second half of March.
Linx took several measures to preserve its cash position, which involved anticipating and reducing costs of cloud operations, decelerating the pace of acquisitions, freezing hirings or promotions, canceling business trips, reducing purchase orders, reducing third-party costs and negotiating office rentals. Negotiations were also carried out with the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), with unions that represent our employees and the terms were renegotiated with suppliers. Complementary actions involved renegotiating and postponing conditions with customers, assessing prospects for each business area and reducing dividend distribution in 2020. Linx has sought to negotiate invoice maturities on a case-by-case basis, according to the relationship with the customer.
We also highlight the action plans focused on team safety, maintaining their activities and ensuring business continuity. Internally, we reinforced the work area hygiene process and made available alcohol gel bottles, masks and thermometers. Internal COVID-19 awareness campaigns were established, monitoring of possible cases, anticipation of the flu vaccination campaign, we reinforced our online channels for possible medical, psychological and financial guidance support, we encourage distance volunteering campaigns and we encourage the realization of online courses available at Linx Academy.
It is also important to note that we are aware of our important role in civil society and have established several strategic partnerships to combat COVID-19. Among them, stands out the “Salvando Vidas” project, carried out jointly with BNDES to raise funds for the purchase of medical-hospital materials from Brazilian philanthropic entities.
We continue to operate normally andreaffirm our long-term commitment, guaranteeing the safety of our team, the service to customers and suppliers, and consequently, to the business. We will continue to invest in innovation and in valuing our team to bring people and technology even closer together through passionate shopping experiences around the world. We believe that accelerating the retailers' digital transformation process, regardless of their size, is fundamental to guarantee a good performance with the new consumer habits.
As always, we thank everyone for your trust and remain at your disposal.
Alberto Menache & Linx Team
#soulinx
3
Statutory Management Statement
In compliance with the provisions contained in CVM instructions, the Board of Directors, the Audit Committee and the Fiscal Council of Linx declare that they discussed, reviewed and agreed with the conclusions expressed in the audit report of the independent auditors and with the quarterly financial statements the period ended March 31, 2020, authorizing its disclosure.
Relationship with Independent Auditors
The financial statements of the Company and its subsidiaries are audited by Ernst & Young Independent Auditors.
The Company's policy for contracting services not related to external auditing seeks to assess the existence of a conflict of interest, thus, the following aspects are assessed: the auditor must not (i) audit his own work; (ii) exercising managerial functions in your client and (iii) promoting your client's interests.
São Paulo, June 08, 2020.
4
A free translation from Portuguese into English of Independent Auditor’s Report on review of interim financial information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil
Report on the review of interim financial information
To the Shareholders, Board of Directors and Officers
Linx S.A.
São Paulo - SP
Introduction
We havereviewed the individual and consolidated interim financial information of Linx S.A. (“Company”), contained in the Quarterly Information (ITR) for the quarter ended March 31, 2020, which comprises the statement of financial position as at March 31, 2020 and the related statement of profit or loss, of comprehensive income (loss), changes in equity and cash flow statement for the three-month period then ended and the explanatory notes.
The Company’s Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with Accounting Pronouncement NBC TG 21 and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of this financial information in accordance with the rules issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.
Scope of review
We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion on the individual and consolidated interim financial information
Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above is not prepared, in all material respects, in accordance with NBC TG 21 and IAS 34, applicable to the preparation of Quarterly Information (ITR), consistently with the rules issued by the Brazilian Securities and Exchange Commission.
Other matters
Statement of Value Added
We have also reviewed the individual and consolidated statements of value added (DVA) for thethree-month period ended March 31, 2020, prepared under responsibility of Company's Management, and presented as supplementary information for IAS 34. This financial information was submitted to review procedures carried out jointly with the audit of Company’s quarterly information. To form a conclusion, we evaluated whether these statements are reconciled with interim financial information and accounting records, as applicable, and whethertheir forms and contents are in accordance with criteria defined in Technical Pronouncement NBC TG 09 – Statement of Added Value. Based on our review, we are not aware of any other event that make us believe that these statements of added value were not prepared, in all material respects, in according the criteria defined by this standard and consistently in accordance with individual and consolidated interim financial information taken as a whole.
5
São Paulo, June 08, 2020.
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP034519/O-6
Vanessa Martins Bernardi
Accountant CRC-1SP244569/O-3
6
Linx S.A. | |||||
Balance sheets | |||||
As of March 31, 2020, December 31, 2019 | |||||
(In thousands of reais) | |||||
Parent company | Consolidated | ||||
March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | ||
Assets | |||||
Current assets | |||||
Cash and cash equivalents (Note 5) | 521 | 16,387 | 66,344 | 75,898 | |
Financial assets (Note 6) | 559,512 | 732,473 | 671,455 | 902,289 | |
Trade accounts receivable (Note 7) | - | - | 259,556 | 276,626 | |
Recoverable taxes (Note 8) | 6,474 | 5,975 | 25,692 | 22,648 | |
Other assets (Note 10) | 72 | 93 | 19,187 | 22,509 | |
566,579 | 754,928 | 1,042,234 | 1,299,970 | ||
Non-current assets | |||||
Long-term assets | |||||
Financial assets (Note 6) | - | - | 4,313 | 2,073 | |
Trade accounts receivable (Note 7) | - | - | 10,613 | 11,485 | |
Recoverable taxes (Note 8) | - | - | 5,417 | 5,166 | |
Deferred taxes (Note 20) | 1,536 | 2,220 | 2,803 | 3,357 | |
Other receivables (Note 10) | - | - | 24,244 | 26,338 | |
1,536 | 2,220 | 47,390 | 48,419 | ||
Investments (Note 11) | 1,188,450 | 1,046,362 | - | - | |
Property, plant and equipment, net (Note 12) | - | - | 94,381 | 82,201 | |
Intangible assets, net (note 13) | - | - | 1,199,755 | 1,009,314 | |
Right-of-use (Note 14) | - | - | 121,274 | 124,039 | |
1,188,450 | 1,046,362 | 1,415,410 | 1,215,554 | ||
1,189,986 | 1,048,582 | 1,462,800 | 1,263,973 | ||
Total assets | 1,756,565 | 1,803,510 | 2,505,034 | 2,563,943 | |
See the accompanying notes to interim financial information. |
7
Linx S.A. | |||||
Balance sheets | |||||
As of March 31, 2020, December 31, 2019 | |||||
(In thousands of reais) | |||||
Parent company | Consolidated | ||||
March 31, 2020 | December 31, 2019 | March 31, 2020 | December 31, 2019 | ||
Liabilities and shareholders' equity | |||||
Current liabilities | |||||
Suppliers | 390 | 1,050 | 20,654 | 24,007 | |
Loans and financing (Note 15) | - | - | 38,688 | 41,245 | |
Lease (Note 16) | - | - | 38,318 | 47,478 | |
Labor obligations (Note 17) | 20 | 20 | 55,682 | 51,080 | |
Taxes payable | 183 | 1,807 | 12,813 | 23,127 | |
Income tax and social contribution | 122 | - | 3,423 | 3,823 | |
Payables for the acquisition of businesses (Note 18) | - | - | 87,857 | 43,432 | |
Deferred revenue (Note 19) | - | - | 32,193 | 36,360 | |
Dividends payable | 9,719 | 9,719 | 9,719 | 9,719 | |
Other liabilities (Note 21) | 1,070 | 1,070 | 83,888 | 89,576 | |
11,504 | 13,666 | 383,235 | 369,847 | ||
Non-current liabilities | |||||
Loans and financing (Note 15) | - | - | 161,148 | 168,937 | |
Lease (Note 16) | - | - | 71,661 | 78,604 | |
Labor obligations (Note 17) | - | - | 1,837 | 1,977 | |
Payables for the acquisition of businesses (Note 18) | - | - | 34,190 | 39,637 | |
Deferred taxes (Note 20) | - | - | 81,342 | 84,206 | |
Advances for future capital increases | - | - | 300 | - | |
Deferred revenue (Note 19) | - | - | 5,126 | 6,434 | |
Provision for contingencies (Note 23) | - | - | 19,904 | 19,588 | |
Other liabilities (Note 21) | - | - | 1,230 | 4,869 | |
- | - | 376,738 | 404,252 | ||
Total liabilities | 11,504 | 13,666 | 759,973 | 774,099 | |
Shareholders' equity | |||||
Capital (Note 22.1) | 645,447 | 645,447 | 645,447 | 645,447 | |
Capital reserves (Note 22.2) | 1,167,385 | 1,165,605 | 1,167,385 | 1,165,605 | |
Treasury shares | (270,513) | (225,954) | (270,513) | (225,954) | |
Profit reserves | 213,412 | 200,596 | 213,412 | 200,596 | |
Operating loss | (9,054) | - | (9,054) | - | |
Additional dividends proposed | - | 10,281 | - | 10,281 | |
Other comprehensive income (loss) | (1,616) | (6,131) | (1,616) | (6,131) | |
1,745,061 | 1,789,844 | 1,745,061 | 1,789,844 | ||
Total liabilities and shareholders' equity | 1,756,565 | 1,803,510 | 2,505,034 | 2,563,943 | |
See the accompanying notes to interim financial information. |
8
Linx S.A. | |||||
Statements of profit or loss | |||||
Three-month periods ended March 31, 2020 and 2019 | |||||
(In thousands of reais) | |||||
Parent company | Consolidated | ||||
March 31, 2020 | March 31, 2019 | March 31, 2020 | March 31, 2019 | ||
Net operating revenues (Note24) | - | - | 208,531 | 176,805 | |
Cost of services rendered (Note25) | - | - | (72,836) | (59,999) | |
Gross income | - | - | 135,695 | 116,806 | |
Operating income (expenses) | |||||
General and administrative (Note 26) | (882) | (1,248) | (65,500) | (43,962) | |
Selling (Note 13/26) | - | - | (29,552) | (18,372) | |
Research and development (Note 26) | - | - | (36,697) | (35,325) | |
Other operating income (Note 11) | (11,777) | 17,557 | - | - | |
Other operating expenses (Note 26) | - | - | (2,964) | 6,190 | |
(12,659) | 16,309 | (134,713) | (91,469) | ||
Income (loss) before financial income (loss) and taxes | (12,659) | 16,309 | 982 | 25,337 | |
Net financial income (loss) | |||||
Financial income (Note 27) | 5,662 | 923 | 12,622 | 11,867 | |
Financial expenses (Note 27) | (329) | (66) | (21,791) | (13,631) | |
5,333 | 857 | (9,169) | (1,764) | ||
Income (loss) before income tax and social contribution | (7,326) | 17,166 | (8,187) | 23,573 | |
Income tax and social contribution - current (Note 20) | (1,044) | - | (3,574) | (2,025) | |
Income tax and social contribution - deferred (Note 20) | (684) | 14 | 2,707 | (4,368) | |
(1,728) | 14 | (867) | (6,393) | ||
Net income (loss) for the quarter | (9,054) | 17,180 | (9,054) | 17,180 | |
Basic earnings (loss) per share - in Reais (Note 29) | (0.0500) | 0.1082 | (0.0500) | 0.1082 | |
Diluted earning (loss) per share - in Reais (Note 29) | (0.0488) | 0.1064 | (0.0488) | 0.1064 | |
See the accompanying notes to interim financial information. |
9
Linx S.A. | |||||
Statements of comprehensive income | |||||
Three-month periods ended March 31, 2020 and 2019 | |||||
(In thousands of reais) | |||||
Parent company | Consolidated | ||||
March 31, 2020 | March 31, 2019 | March 31, 2020 | March 31, 2019 | ||
Net income (loss) for the quarter | (9,054) | 17,180 | (9,054) | 17,180 | |
Other comprehensive income to be reclassified to income (loss) for the year in subsequent periods | |||||
Accumulated translation adjustments from operations in foreign currency | 4,515 | (874) | 4,515 | (874) | |
Total comprehensive income | (4,539) | 16,306 | (4,539) | 16,306 | |
See the accompanying notes to interim financial information. |
10
Linx S.A. | ||||||||||||||
Statements of changes in shareholders’ equity | ||||||||||||||
Three-month periods ended March 31, 2020 and 2019 | ||||||||||||||
(In thousands of reais) | ||||||||||||||
Capital reserves |
| Profit reserves | ||||||||||||
Capital | Treasury shares | Goodwill in capital subscription | Stock option plan | Expenditures with issuance of shares | Total |
| Legal reserve | Profit retention | Total | Retained earnings | Other comprehensive | Additional dividends proposed | Total | |
Balances at December 31, 2018 | 488,467 | (148,373) | 539,571 | 16,104 | (37,423) | 518,252 | 7,037 | 172,420 | 179,457 | - | (2,830) | 22,236 | 1,057,209 | |
Capital increase | 362 | - | - | - | - | - | - | - | - | - | - | - | 362 | |
Effect of IAS 29 (hyperinflation) | - | - | - | - | - | - | - | 341 | 341 | - | - | - | 341 | |
Accumulated translation adjustments from operations in foreign currency | - | - | - | - | - | - | - | - | - | - | (874) | - | (874) | |
Stock option plan | - | - | - | 2,297 | - | 2,297 | - | - | - | - | - | - | 2,297 | |
Net income for the period | - | - | - | - | - | - | - | - | - | 17,180 | - | - | 17,180 | |
Balances at March 31, 2019 | 488,829 | (148,373) | 539,571 | 18,401 | (37,423) | 520,549 | 7,037 | 172,761 | 179,798 | 17,180 | (3,704) | 22,236 | 1,076,515 | |
Balances at December 31, 2019 | 645,447 | (225,954) | 1,222,025 | 39,737 | (96,157) | 1,165,605 |
| 7,037 | 193,559 | 200,596 | - | (6,131) | 10,281 | 1,789,844 |
Destination of additional dividends proposed | - | - | - | - | - | - | - | 10,281 | 10,281 | - | - | (10,281) | - | |
Repurchase of shares | - | (44,559) | - | - | - | - | - | - | - | - | - | - | (44,559) | |
Stock option plan | - | - | - | 1,780 | - | 1,780 | - | - | - | - | - | - | 1,780 | |
Effect of IAS 29 (hyperinflation) | - | - | - | - | - | - | - | 2,535 | 2,535 | - | - | - | 2,535 | |
Accumulated translation adjustments from operations in foreign currency | - | - | - | - | - | - | - | - | - | - | 4,515 | - | 4,515 | |
Loss for period | - | - | - | - | - | - | - | - | - | (9,054) | - | - | (9,054) | |
Balances at March 31, 2020 | 645,447 | (270,513) | 1,222,025 | 41,517 | (96,157) | 1,167,385 |
| 7,037 | 206,375 | 213,412 | (9,054) | (1,616) | - | 1,745,061 |
See the accompanying notes to interim financial information. |
11
Linx S.A. | ||||||
Statements of cash flows | ||||||
Three-month periods ended March 31, 2020 and 2019 | ||||||
(In thousands of reais) | ||||||
Parent company |
| Consolidated | ||||
Nota | March 31, 2020 | March 31, 2019 | March 31, 2020 | March 31, 2019 | ||
Cash flows from operating activities | ||||||
Net income (loss) for the quarter | (9,054) | 17,180 | (9,054) | 17,180 | ||
Adjustments to reconcile income to cash and cash equivalents generated by (used in) operational activities: | ||||||
Depreciation and amortization | 12/13 | - | - | 36,181 | 24,348 | |
Equity in net income of subsidiaries | 11 | 11,777 | (17,557) | - | - | |
Allowance for doubtful accounts | 7 | - | - | 2,292 | 529 | |
Losses (gains) on write-off/disposal of goods | - | - | 80 | 429 | ||
Addition (reversal) of adjustment to present value | - | - | 1,484 | 1,531 | ||
Stock option plan | (35) | 690 | 1,780 | 2,297 | ||
Financial charges | - | - | 12,185 | 7,642 | ||
Deferred taxes | 20 | 684 | (14) | (2,707) | 4,368 | |
Current taxes | 20 | - | - | 3,574 | 2,025 | |
Provisions for contingency | 23 | - | - | 316 | 1,334 | |
Other operating revenue | - | - | (161) | (9,232) | ||
Revenue from interest earning bank deposits | (5,706) | (923) | (7,024) | (6,526) | ||
Effect from adoption of hyperinflation | - | - | 2,517 | 519 | ||
6,720 | (17,804) | 50,517 | 29,264 | |||
Change in operating assets and liabilities: | ||||||
Trade accounts receivable | - | - | 16,318 | (6,124) | ||
Recoverable taxes | 22 | 551 | (1,937) | 3,415 | ||
Other credits and judicial deposits | 21 | (1,571) | 13,061 | (9,021) | ||
Suppliers | (660) | 58 | (6,494) | (1,256) | ||
Labor liabilities | - | - | 4,184 | 10,707 | ||
Taxes and contributions payable | (458) | (274) | (14,514) | (2,123) | ||
Deferred revenue | - | - | (5,475) | (4,481) | ||
Other accounts payable | - | (4) | (29,402) | 9,117 | ||
Income tax and social contribution paid | 20 | (1,044) | - | (1,802) | (1,093) | |
Cash flow generated (invested) by operating activities | (4,453) | (1,864) | 15,402 | 45,585 | ||
Cash flows from investment activities | ||||||
Acquisition of fixed assets | - | - | (6,012) | (4,770) | ||
Acquisition of intangible assets | - | - | (20,580) | (18,442) | ||
Acquisition of entity, net of cash and cash equivalents acquired | - | - | (129,909) | - | ||
Capital increase in subsidiaries | (145,000) | - | - | - | ||
Investment in short-term investments | (15,610) | (344) | (150,977) | (117,514) | ||
Redemption of interest and interest earning bank deposits | 193,756 | 1,846 | 385,990 | 124,175 | ||
Cash flow generated (invested) by investing activities | 33,146 | 1,502 | 78,512 | (16,551) | ||
Cash flows from financing activities | ||||||
Additions of loans and financing | 15 | - | - | 928 | - | |
Payments of loans and financing | 15 | - | - | (11,284) | (10,331) | |
Lease payment | 16 | - | - | (31,520) | (3,564) | |
Advances for future capital increases | - | - | 300 | - | ||
Financial charges paid | 15 | - | - | (5,475) | (3,851) | |
Payment for the acquisition of subsidiaries | 18 | - | - | (18,672) | (10,681) | |
Treasury shares | (44,559) | - | (44,559) | - | ||
Capital contributions from shareholders | 22 | - | 362 | - | 362 | |
Cash flow generated (invested) by financing activities | (44,559) | 362 |
| (110,282) | (28,065) | |
Exchange rate change on cash and cash equivalents | - | - | 6,814 | (874) | ||
Increase (decrease) in cash and cash equivalents | (15,866) | - | (9,554) | 95 | ||
Statement of increase (decrease) in cash and cash equivalents | ||||||
At the beginning of the period | 16,387 | 50 | 75,898 | 49,850 | ||
At end of period | 521 | 50 | 66,344 | 49,945 | ||
See the accompanying notes to interim financial information. |
12
Linx S.A. | |||||
Statement of Value Added | |||||
Three-month periods ended March 31, 2020 and 2019 | |||||
(In thousands of reais) | |||||
Parent company | Consolidated | ||||
March 31, 2020 | March 31, 2019 | March 31, 2020 | March 31, 2019 | ||
Revenues | |||||
Gross sales of services and goods | - | - | 232,274 | 196,555 | |
Other revenues | - | - | 412 | 8,124 | |
Allowance for doubtful accounts | - | - | (2,086) | (529) | |
- | - | 230,600 | 204,150 | ||
Inputs acquired from third parties | |||||
Cost of services and goods sold | - | - | (17,747) | (13,200) | |
Materials, energy, outsourced services and other operating items | (567) | (270) | (40,916) | (31,907) | |
Loss and recovery of asset values | - | - | (1,092) | (1,202) | |
(567) | (270) | (59,755) | (46,309) | ||
Gross added value | (567) | (270) | 170,845 | 157,841 | |
Depreciation and amortization | - | - | (36,362) | (24,348) | |
Net value added produced by the Company | (567) | (270) | 134,483 | 133,493 | |
Added value received as transfer | |||||
Equity in net income of subsidiaries | (11,777) | 17,557 | - | - | |
Financial revenues | 5,662 | 923 | 12,622 | 10,284 | |
(6,115) | 18,480 | 12,622 | 10,284 | ||
Total added value payable | (6,682) | 18,210 | 147,105 | 143,777 | |
Payment of value added | |||||
Personnel | 315 | 978 | 107,735 | 87,960 | |
Direct remuneration | 315 | 978 | 87,815 | 71,675 | |
Benefits | - | - | 12,614 | 10,391 | |
FGTS | - | - | 7,306 | 5,894 | |
Taxes, duties and contributions | 1,728 | (14) | 24,646 | 26,561 | |
Federal | 1,728 | (14) | 17,037 | 20,218 | |
State | - | - | 1,340 | 1,150 | |
Municipal | - | - | 6,269 | 5,193 | |
Third-party capital remuneration | 329 | 66 | 23,778 | 12,076 | |
Interest | 329 | 66 | 21,791 | 12,048 | |
Rents | - | - | 1,987 | 28 | |
Own capital remuneration | (9,054) | 17,180 | (9,054) | 17,180 | |
Dividends and interest on own capital | 9,719 | - | 9,719 | - | |
Retained earnings | (18,773) | 17,180 | (18,773) | 17,180 | |
See the accompanying notes to interim financial information. |
13
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
1. Operations
Founded in 1985 and headquartered at Avenida Doutora Ruth Cardoso, 7221, 7º Andar, city and state of São Paulo, Linx S.A. (“Company” or “Linx”), corporation, which by means of its subsidiaries, provides ERP (Enterprise Resource Planning) and POS (Point of Sale or Point of Service) management software solutions, and connectivity solutions, TEF (Electronic Funds Transfer), e-commerce and CRM (Customer Relationship Management) and OMS (Order Management System) and payment methods to the retail industry in Latin America. The Company offers innovative and scalable technology, with focus upon and long-term specialization in the retail industry, its vertical model of operation, which combines its own teams in the commercial, implementation, consulting and support areas and through our differentiated business model.
Linx went public on February 8, 2013 and Company’s shares are listed on the New Market segment of São Paulo Stock Exchange B3 and are traded under the ticker symbol “LINX3”.
On June 26, 2019, by means of common shares and issue of American Depositary Shares (“ADS”), Linx went public on the New York Stock Exchange ("NYSE") under the code "LINX" and is engaged in interest in other commercial or civil companies, domestic or foreign, as a partner, shareholder, quotaholder and also, representation of any type of company in Brazil or abroad and management of own or third parties’ assets.
2. Basis of preparation and presentation of interim financial information
2.1. Statement of conformity
The individual and consolidated interim financial information were prepared in accordance with Technical Pronouncement CPC 21 (R1) - Interim Statement, issued by the Accounting Pronouncement Committee and equivalent to the International Accounting Standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB) applicable to the preparation of Quarterly Information - ITR, and presented in accordance with standards issued by the Securities and Exchange Commission, applicable to the Quarterly Information - ITR.
The presentation of the Statement of Value Added (DVA) is required by Brazilian corporate law and the accounting practices adopted in Brazil, associated with listed companies. IFRS does not require a presentation of this statement. As a consequence, under IFRS, this statement is available as supplementary information, without prejudice to the set of interim financial information.
All relevant information applicable to the interim financial information and only this, is being disclosed and these are used by management in its management.
14
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
2.2. Basis of preparation and presentation
The individual and consolidated interim financial information were prepared using historical cost as the value base, except for the valuation of certain assets and liabilities such as those from business combinations and financial instruments, which are measured at fair value. The individual and consolidated interim financial information present comparative information in relation to the prior period.
The Company’s individual and consolidated interim financial information were prepared with the Real as the functional and presentation currency, and are expressed in thousands of Reais, unless otherwise stated.
The individual and consolidated interim financial information were prepared in accordance with measurement bases used in accounting estimates. The accounting estimates were based on objective and subjective factors, with a basis on Management's judgment for determination of the adequate amount to be recorded in the interim financial informatio. Significant items subject to these estimates and assumptions include the selection of fixed and intangible assets and its recoverability in operations, deferred taxes, evaluation of financial assets at fair value, credit risk analysis to determine the provision for estimated credit losses in doubtful accounts, and the analysis of the remaining risks to determine other provisions, including for contingencies.
The settlement and uncertainties of transactions involving judgment and assumptions of these estimates may result in significantly different amounts described in the interim financial information due to the probabilistic treatment inherent to the estimative process. Estimates and assumptions are reviewed by the Company at least annually.
Among the captions of payments of loans and financing and lease payment, in the cash flow statements, for the interim financial information of March 31, 2019, there was reclassification in order to allow comparability with the information of March 31, 2020.
The issue of individual and consolidated interim financial information were approved by the Board of Directors on June 08, 2020.
2.3. Covid-19
Since March 2020, several Brazilian states have been adopting measures of social distance to flatten the population contamination curve by the new coronavirus, in an effort to prevent a possible collapse of the public health system. Most of these measures involve closing commercial establishments not connected to essential services.
Linx cannot predict the extent and duration of the measures adopted by governments in the countries in which the Company and its subsidiaries operate and, therefore, cannot predict the direct and indirect impacts of the coronavirus on its business, results of operations and financial condition.
However, the Company took several measures to preserve cash, which involved anticipating and reducing the costs of cloud operations, decelerating the pace of acquisitions, freezing theopening of vacancies or promotions, canceling business trips, reducing purchase orders , cost reduction with third parties and negotiation of office rentals. Negotiations were also carried out with the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), with unions that represent our employees and the terms were renegotiated with suppliers. Complementary actions involved renegotiating and postponing conditions with customers, assessing future prospects for each business area and reducing dividend distribution in 2020. Linx has sought to negotiate invoice maturities on a case-by-case basis, according to the relationship with the customer.
15
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Additionally, the Company assessed the circumstances that could indicate the impairment of its non-financial assets and concluded that there were no changes in the circumstances that would indicate an impairment loss. As the pandemic is still advancing, the financial impact of the coronavirus on the Company's cash-generating units ("CGU"), if any, cannot be estimated accurately at the moment.
3. Summary of significant accounting policies
The individual and consolidated interim financial information presented were prepared in accordance with policies, accounting practices and methods for calculating estimates adopted in the preparation of the annual financial statements for the year ended December 31, 2019, disclosed on March 30, 2020, at which are presented in detail.
We present below a summary of the significant accounting policies adopted by the Company, highlighting only information considered relevant by Management.
3.1. Presentation of segment information
An operating segment is a component of the Company which engages in business activities from which it may earn revenues and incur expenses. Operating segments reflect the way the Company’s management reviews financial information for decision-making. The Company’s management identified the operating segments that meet the quantitative and qualitative parameters for disclosure, mainly representing types of businesses, i.e., Linx Software and Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
3.2. Consolidation basis
The consolidated interim financial information comprise the financial information of the Company and its subsidiaries as of March 31, 2020. Control is obtained when the Company is exposed or entitled to variable returns based on its involvement with the investee and has the ability to affect those returns through the power exercised in relation to the investee. Specifically, the Company controls an investee if, and only if, it has:
· Power in relation to the investee (i.e., existing rights that guarantee the current ability to govern the relevant activities of the investee);
· Exposure or right to variable returns based on its involvement with the investee;
16
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
· The ability to use its power over the investee to affect its income (loss).
The Company re-evaluates whether or not it exercises control over an investee if facts and circumstances indicate that there are changes in one or more of the three control elements. The consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company ceases to exercise said control. Assets, liabilities and income (loss) of a subsidiary acquired or sold during the year are included in the consolidated financial statements from the date the Company obtains control through the date the Company ceases to exercise control over the subsidiary.
When necessary, adjustments are made to the financial information of the subsidiaries to align their accounting practices with the Company’s accounting practices. All related party assets and liabilities, shareholders’ equity, revenues, expenses and cash flows related to transactions between related parties are fully eliminated in the consolidation process.
The parent company’s individual interim financial information, financial information of subsidiaries are recognized under the equity method.
The individual and consolidated interim financial information include significant information of Linx S.A. and its subsidiaries, as follows:
% Interest | ||
| 03/31/2020 | 12/31/2019 |
Subsidiaries | ||
Linx Sistemas e Consultoria Ltda. | 99.99% | 99.99% |
Linx Telecomunicações Ltda. | 99.99% | 99.99% |
| ||
Indirect subsidiaries | ||
Napse S.R.L. | 100.00% | 100.00% |
Synthesis Holding LLC. | 100.00% | 100.00% |
Retail Renda Fixa Crédito Privado Fundo de Investimento | 100.00% | 100.00% |
Santander Moving Tech RF Referenciado DI CP FI | 100.00% | 100.00% |
Sback Tecnologia da Informação Ltda. | 100.00% | 100.00% |
Linx Pay Meios de Pagamento Ltda. | 100.00% | 100.00% |
Hiper Software S.A. | 100.00% | 100.00% |
SetaDigital Sistemas Gerenciais Ltda. | 100,00% | 100,00% |
Esmeralda Serviços Digitais Ltda.(**) | 100,00% | - |
Safira Serviços Digitais Ltda(**) | 100,00% | - |
Ametista Serviços Digitais Ltda(**) | 100,00% | - |
Diamante Serviços Digitais Ltda(**) | 100,00% | - |
RRA Ferreira ME (*) | 100,00% | - |
(*) Companies acquired by Linx Sistemas in 2020.
(**) Companies acquired by Linx Pay in 2020.
17
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Linx S.A is the direct parent company of the following companies:
Linx Sistemas e Consultoria Ltda.(“Linx Sistemas”): engaged in developing management software for the retail segment, providing technical support, advisory and training.
Linx Telecomunicações Ltda. (“Linx Telecomunicações”): engaged in the provision of telecommunication services in general, such as transmission of voice, data, images and sound by any means, including services of networks and circuits, telephony, by any systems, including via Internet.
Linx S.A is the indirect parent company of the following companies:
Napse S.R.L. (“Napse”): operates in the development and sales of point-of-sale (POS) automation software, electronic payment solutions (TEF) and promotion engine for large retail chains in the main Latin American markets.
Synthesis Holding LLC. (“Synthesis”): holding company belonging to Napse group, controller of Synthesis US LLC (United States of America), Synthesis I.T. e Retail Americas S.R.L. (Mexico).
Retail Renda Fixa Crédito Privado Fundo de Investimento (“Retail Renda Fixa”) Exclusive investment fund, reserved for the investment transactions of the Company and their subsidiaries.
Santander Moving Tech RF Referenciado DI CP FI (“Santander Moving Tech”): Exclusive investment fund, reserved for the investment transactions of the Company and their subsidiaries.
Sback Tecnologia da Informação Ltda.(“Sback”):operates in the cloud platform leader in technologies of retention, reengagement and recapture through Big Data and Intelligence for engagement.
Linx Pay Meios de Pagamento Ltda.(“Linx Pay”): operates with the purpose of aggregating all of the Company’s initiatives related to fintech such as TEF (payment gateway), DUO (Smart POS) and the newly launched Linx Pay Easy (sub-acquiring), besides the new products aligned with Linx’s strategic positioning in such area.
Hiper Software S.A. (“Hiper”): operates with the purpose of solutions in the Software as a Service (SaaS) model for micro and small retailers.
SetaDigital Sistemas Gerenciais Ltda. (“Seta”): operates with a focus on ERP solutions and services for footwear retail.
Esmeralda Serviços Digitais Ltda. (‘’PinPag”): fintech specializes in electronic payment and offers customized and disruptive installment solutions for retail.
Safira Serviços Digitais Ltda. (‘’PinPag”):fintech specializes in electronic payment and offers customized and disruptive installment solutions for retail.
18
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Ametista Serviços Digitais Ltda. (‘’PinPag”): fintech specializes in electronic payment and offers customized and disruptive installment solutions for retail.
Diamante Serviços Digitais Ltda. (‘’PinPag”): fintech specializes in electronic payment and offers customized and disruptive installment solutions for retail.
RRA Ferreira ME.(‘’Neemo”): active in personalized delivery solutions through the integration of the establishment's delivery application and its e-commerce platform.
3.3. New or reviewed pronouncements with first-time adoption in 2020
These individual and consolidated interim financial information have been prepared using accounting policies consistent with those adopted for the preparation of the interim financial information for the year ended December 31, 2019 (Note 3 – “Significant Accounting Policies”) and must be reviewed together with these interim financial information, as well as considering the new pronouncements, interpretations and amendments that came into effect from January 1, 2020, described below:
Standards and amended standards | |
Amendments to IFRS 3 / CPC 15 (R1) | In October 2018, the IASB issued changes to the definition of business in IFRS 3, these changes being reflected in revision 14 of the CPC, amending CPC 15 (R1) to help entities determine whether an acquired set of activities and assets consists of or not in a business. |
Amendments to IAS 1 / CPC 26 (R1) and IAS 8 / CPC 23 | Aligns the definition of “material omission” or “materially distorted disclosure” in all standards and clarifies certain aspects of the definition. |
Amendments to IAS 39/CPC 38, CPC IFRS 7/40 (R1) and IFRS 9/CPC 48 | It addresses the reform of interest rates used as market benchmarks, which will be finalized in future periods. |
The Company and its subsidiaries do not expect significant impacts as a result of the standards and interpretations issued.
3.4. New standards, amendments and interpretations of issued standards that did not become effective
At the date these interim financial information were prepared, the following standards and amendments had been published; however, application thereof was not mandatory. The Company and its subsidiaries did not early adopt any pronouncement or interpretation issued whose application was not mandatory.
Standards and interpretations issued but not yet effective through the date the Company's interim financial information were issued are set out below:
19
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Standards and amended standards | Effective date | |
IFRS 17/CPC 50 | Insurance contracts | January 1, 2021 |
The Company and its subsidiaries do not expect relevant impacts as a result of standards and interpretations that were issued but are not yet effective.
4. Business combination
4.1. Acquisition of PinPag
On January 30, 2020, Linx Pay Meios de Pagamentos Ltda., wholly-owned subsidiary of Linx S.A., acquired 100% of the share capital of Esmeralda Serviços Digitais Ltda, Safira Serviços Digitais Ltda, Ametista Serviços Digitais and Diamante Serviços Digitais Ltda. (“PinPag”), which operate in the payment segment as sub-acquiring and payment facilitators, also acting as a banking correspondent for certain banks to carry out their activities. The main motivation for the acquisition of the companies reinforces its strategy of expanding offers, services and products for means of payment, representing an important growth opportunity for the Company.
The price was R$ 200,000 to be paid as follows:
(i) R$ 125,000 paid when the contract is closed;
(ii) R$ 10,000 paid after the sellers have confirmed the acquisition of the common shares issued by Linx S.A.;
(iii) R$ 5,000 retained installments;
(iv) Additional contingent consideration (“Business Acquisition Cost”) of up to R$ 60,000 (fair value in March 31, 2020 is of R$ 33,935), as follows:
· Upon the achieving of certain operating and financial goals in each year and payable in the subsequent year:
o 2020 - R$ 24,560; and
o 2021 - R$ 9,375.
Purchase consideration | |
Amount paid in cash | 125,000 |
Amount to be paid on the acquisition of shares | 10,000 |
Amount retained installments | 5,000 |
Fair value of contingent consideration (Earn-out) | 33,935 |
Total consideration | 173,935 |
Analysis of cash flow from the acquisition | |
Amount paid in cash | 125,000 |
Net cash acquired from subsidiary | (11,396) |
Cash flow from investment activities | 113,604 |
20
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
4.2. Acquisition of Neemo
On February 02, 2020, Linx Sistemas e Consultoria Ltda., the wholly-owned subsidiary of Linx S.A. acquired 100% of the equity of RRA Ferreira - ME. (“Neemo”), which focuses on developing platforms and applications for retailers. The main motivation for the acquisition is to reinforce it is cross selling strategy that aims to encourage the customer to complement their initial purchase, representing an important growth opportunity for the Company.
The price was R$ 22,425, to be paid as follows:
(i) R$ 14,880 paid when the contract is closed;
(ii) R$ 1,500 paid after the sellers have confirmed the acquisition of the common shares issued by Linx S.A.;
(iii) R$ 1,500 retained installments;
(iv) R$ 1,195 that will be paid in thirty-three equal installments;
(v) Additional contingent consideration (“Business Acquisition Cost”) of up to R$ 3,350 (fair value in March 31, 2020 is of R$ 1,031), as follows:
· Upon the achieving of certain operating and financial goals in each year and payable in the subsequent year
o 2020 - R$ 1,031.
Purchase consideration | |
Amount paid in cash | 14,880 |
Amount to be paid on the acquisition of shares | 1,500 |
Amount retained installments | 1,500 |
Amount complementary installments | 1,195 |
Fair value of contingent consideration (Earn-out) | 1,031 |
Total adjusted consideration | 20,106 |
Analysis of cash flow from the acquisition | |
Amount paid in cash | 14,880 |
Amount to be paid on the acquisition of shares | 1,500 |
Net cash acquired from subsidiary | (75) |
Cash flow from investment activities | 16,305 |
21
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
4.3. Measurement of business combination
Pursuant to IFRS 3 (R)/CPC 15 (R1) – Business Combination, the measurement period can not exceed one year from the acquisition date, and therefore, until the allocation of the acquired assets and goodwill is concluded, preliminary values subject to change must be disclosed. The acquisitions are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated by total fair values of transferred assets, liabilities assumed on acquisition date from the former controlling shareholders of the acquiree and shares issued in exchange for control of the acquiree.
4.4. Assets acquired and liabilities assumed
On the date of completion of the preparation of these individual and consolidated interim financial information, the Company is in the process of reviewing and adjusting the determination of the fair value of the identifiable assets acquired and the liabilities assumed of the acquired companies. It is estimated that this analysis will be concluded soon, as soon as Management has all the relevant information of the facts, not exceeding the maximum period of 12 months from the acquisition date.
Preliminary goodwill totaling to R$ 186,864 comprises future economic benefits stemming from synergies resulting from the acquisitions. Goodwill is expected to generate future tax benefits.
Since the date of acquisition date, the acquired companies contributed to the Company with revenues of R$ 10,613 and pre-tax income of R$ 2,531.
5. Cash and cash equivalents
| Parent company | Consolidated | ||
| 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||
Cash and banks - denominated in the R$ | 506 | 16,371 | 41,472 | 50,526 |
Cash and banks - in foreign currency | - | - | 12,324 | 17,448 |
Short-term financial assets (*) | 15 | 16 | 12,548 | 7,924 |
| 521 | 16,387 | 66,344 | 75,898 |
(*) In the periods ended March 31, 2020 and December 31, 2019, there were no investments in foreign currency.
(**) The amounts presented include R$ 15,729 (R$ 9,502 on December 31, 2019) related to Linx Pay Meios de Pagamento Ltda and its subsidiaries.
Highly liquid short-term financial assets are promptly convertible into a known amount of cash and subject to a minimal risk of change of value.
22
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Short-term financial assets refer to Fixed Income Fund accruing interest as remunerated at rate of 53.28% of the Interbank Deposit Certificate (CDI).
The exposure of the Company and its subsidiaries to risk and the sensitivity analysis are disclosed in Note 28.
6. Financial assets
Parent Company | Consolidated | |||||||
Type | Name | Date of investment | Maturity | Average yield in relation to CDI (%) | 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||||||
Domestic currency |
|
|
|
|
|
|
| |
Fund | Retail Renda Fixa Crédito Privado Fundo de Investimento | 08/01/2018 | Indefinite | 107.13% | 458,424 | 632,341 | 546,988 | 774,257 |
Fund | Moving Tech Renda Fixa | 03/24/2020 | Indefinite | 96.93% | 101,088 | 100,132 | 101,099 | 100,136 |
Fund | Options | 11/29/2019 | 03/03/2021 | 104.00% | - | - | 22,340 | 16,901 |
Fund | Fixed income (*) | 05/20/2019 | 09/01/2025 | 104.38% | - | - | 5,341 | 9,034 |
Total domestic currency | 559,512 | 732,473 | 675,768 | 900,328 | ||||
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
| |
Other | Time Deposit | 12/12/2019 | 02/10/2020 | - | - | - | - | 4,034 |
Total foreign currency | - | - | - | 4,034 | ||||
|
|
|
|
|
|
|
|
|
Total (**) |
|
|
|
| 559,512 | 732,473 | 675,768 | 904,362 |
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
| 559,512 | 732,473 | 671,445 | 902,289 |
| Non-current assets |
|
|
| - | - | 4,313 | 2,073 |
(*) The amounts presented include R$ 2,200 of government securities pledged as collateral in Linx Pay operations.
(**) The amounts presented include R$ 21,541 (R$ 9,007 as of December 31, 2019) related to Linx Pay Meios de Pagamento Ltda and its subsidiaries.
Management’s policy is to substantially use these funds for punctual payments, such as acquisition of companies and payment of interest on own capital, not using funds invested in this account to cover operating cash flow needs.
The exposure of the Company and its subsidiaries to risk and the sensitivity analysis are disclosed in Note 28.
7. Trade accounts receivable
Consolidated | ||
| 03/31/2020 | 12/31/2019 |
Trade notes receivable: | ||
Falling due | 227,192 | 248,411 |
Overdue | 32,267 | 27,243 |
| 259,459 | 275,654 |
|
|
|
Trade notes receivable - abroad: |
| |
Falling due | 8,772 | 12,247 |
Overdue | 8,556 | 4,978 |
| 17,328 | 17,225 |
|
|
|
Total (*) | 276,787 | 292,879 |
|
|
|
|
|
|
(-) Estimated losses with doubtful accounts | (5,652) | (3,360) |
(-) Adjustment to present value | (966) | (1,408) |
| 270,169 | 288,111 |
|
| |
Current assets | 259,556 | 276,626 |
Non-current assets | 10,613 | 11,485 |
(*) The amounts presented include R$ 84,957 (R$ 96,026 as of December 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
23
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Following is the net securities for the provision for losses and adjustment to present value:
Consolidated | ||
| 03/31/2020 | 12/31/2019 |
| ||
Falling due | 234,972 | 259,221 |
Overdue (days): |
|
|
1–30 | 22,491 | 18,749 |
31–60 | 4,802 | 2,290 |
61–90 | 6,670 | 3,663 |
91–180 | 1,234 | 4,188 |
| 270,169 | 288,111 |
The Company and its subsidiaries forms Estimated losses with doubtful accounts considering the history of losses per due date, which the Company and its subsidiaries consider sufficient to cover any losses. The Company and its subsidiaries also recognize a provision for the expected losses in trade accounts receivable that comprise outstanding accounts receivable base. Management believes that risk related to general trade accounts receivable is minimized by the fact that the breakdown of the clients of the Company and its subsidiaries to be diluted.
The changes in this provision in the consolidated is shown as follows:
Consolidated | ||
Changes in doubtful accounts | 03/31/2020 | 12/31/2019 |
|
|
|
Opening balance | (3,360) | (4,215) |
Addition of provision | (2,545) | (5,551) |
Use/reversal | 253 | 6,406 |
Closing balance | (5,652) | (3,360) |
8. Recoverable taxes
Parent company | Consolidated | ||||
03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 | ||
Withholding taxes and contributions | 6,474 | 5,975 |
| 20,765 | 18,494 |
ICMS | - | - | 5,525 | 5,242 | |
PIS and COFINS | - | - | 1,367 | 1,367 | |
Other (*) | - | - | 3,452 | 2,711 | |
6,474 | 5,975 | 31,109 | 27,814 | ||
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | 6,474 | 5,975 |
| 25,692 | 22,648 |
Non-current assets | - | - |
| 5,417 | 5,166 |
24
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
9. Related parties
9.1 Remuneration of key management personnel
Total key management personnel remuneration (11 and 7 administrators in 2020 and 2019, respectively) for the periods ended March 31, 2020 and 2019 are summarized as follows:
03/31/2020 | 03/31/2019 | |
Short-term employee benefits | ||
Payment of Directors’ fees | 1,876 | 3,957 |
Share-based payments | 1,003 | 744 |
| 2,879 | 4,701 |
9.2 Profit (loss)
In the period ended March 31, 2020, there were shared expenses amounting to R$ 3,443 (R$ 1,963 at March 31, 2019).
9.3 Interest on own capital
In the period ended March 31, 2019, interest on own capital of Linx Sistemas was paid to Linx S.A. in the amount of R$ 18,000.
10. Other assets
Parent company | Consolidated | |||
| 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||
Advance to employees, vacation and 13th salary | - | - | 13,521 | 16,706 |
Retentions for contingencies – Acquired (*) | - | - | 12,740 | 13,193 |
Prepaid expenses - Services | - | - | 7,092 | 7,464 |
Advance to suppliers | 28 | 16 | 5,108 | 6,141 |
Other (**) | 44 | 77 | 4,970 | 5,343 |
| 72 | 93 | 43,431 | 48,847 |
|
|
|
|
|
Current assets | 72 | 93 | 19,187 | 22,509 |
Non-current assets | - | - | 24,244 | 26,338 |
(*) Refers to contingent portions of companies Direção, Spress, Rezende, Liderança, Quadrant, CSI, LZT, BR Coelho, Big Automação, Intercamp, Percycle, Itec Informática, DCG, Napse and Millennium, according to acquisition contracts.
(**) Corresponds substantially to other credits from Napse in the amount of R$ 3,531 (R$ 3,527 as of December 31, 2019) and judicial deposits.
25
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
11. Investments
11.1 Investments in direct subsidiaries
Linx Sistemas |
| Linx Telecomunicações |
| Total | |
Interest | 99.99% | 99.99% | |||
Balances at December 31, 2018 | 979,389 | 7,911 | 987,300 | ||
Equity in net income of subsidiaries | 33,778 |
| 1,618 |
| 35,396 |
Capital increase | - |
| 2,500 |
| 2,500 |
Accumulated translation adjustment | (3,364) |
| - |
| (3,364) |
Post-employment benefit | 63 |
| - |
| 63 |
Effect of IAS 29 update (hyperinflation) | 2,263 |
| - |
| 2,263 |
Stock option plans | 22,204 |
| - |
| 22,204 |
Balances at December 31, 2019 | 1,034,333 |
| 12,029 |
| 1,046,362 |
Equity in net income of subsidiaries | (12,393) |
| 616 |
| (11,777) |
Capital increase | 145,000 |
| - |
| 145,000 |
Accumulated translation adjustment | 4,515 |
| - |
| 4,515 |
Effect of IAS 29 update (hyperinflation) | 2,535 |
| - |
| 2,535 |
Stock option plans | 1,815 |
| - |
| 1,815 |
Balances at march 31, 2020 | 1,175,805 |
| 12,645 |
| 1,188,450 |
11.2 Information on direct subsidiaries
Linx Sistemas |
| Linx Telecomunicações |
| Total | |
Balances at March 31, 2020 | |||||
Interest | 99.99% | 99.99% | |||
Current assets | 473,495 |
| 9,419 |
| 482,914 |
Non-current assets | 1,513,212 |
| 5,520 |
| 1,518,732 |
Total assets | 1,986,707 |
| 14,939 |
| 2,001,646 |
|
|
|
|
| |
Current liabilities | 394,950 |
| 2,294 |
| 397,244 |
Non-current liabilities | 415,952 |
| - |
| 415,952 |
Total liabilities | 810,902 |
| 2,294 |
| 813,196 |
|
|
|
|
| |
Shareholders' equity | 1,175,805 |
| 12,645 |
| 1,188,450 |
|
|
|
|
| |
Revenues | 239,648 |
| 5,133 |
| 244,781 |
Expenses | (252,041) |
| (4,517) |
| (256,558) |
Net income | (12,393) |
| 616 |
| (11,777) |
26
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
12. Property, plant and equipment
03/31/2020 |
| 12/31/2019 | |||
Cost | Accumulated depreciation | Net value |
| Net value | |
|
|
| |||
Computers and electronics | 77,392 | (44,184) | 33,208 |
| 21,611 |
Vehicles | 10,326 | (4,969) | 5,357 |
| 4,308 |
Furniture and fixtures | 16,956 | (7,220) | 9,736 |
| 9,629 |
Facilities, machinery and equipment | 37,691 | (17,964) | 19,727 |
| 19,668 |
Leasehold improvements | 42,740 | (19,906) | 22,834 |
| 23,433 |
Real Estate | 3,350 | (837) | 2,513 |
| 2,546 |
Land and others | 1,006 | - | 1,006 |
| 1,006 |
Total (*) | 189,461 | (95,080) | 94,381 |
| 82,201 |
(*) The amounts presented include R$ 15,785 (R$ 4,449 as of December 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
The financial activity of property, plant and equipment balances is described below:
| Cost | |||||||
Balance at 12/31/2019 | Addition (*) | Addition - acquisition | IAS 29 (**) | Write-offs | Transfers | Foreign exchange | Balance at 03/31/2020 | |
|
|
| ||||||
Computers and electronics | 58,270 | 3,356 | 15,396 | (100) | (3) | 308 | 165 | 77,392 |
Vehicles | 9,745 | 1,546 | - | (6) | (979) | 13 | 7 | 10,326 |
Furniture and fixtures | 16,447 | 349 | 116 | (8) | - | 36 | 16 | 16,956 |
Facilities, machinery and equipment | 36,810 | 796 | 49 | - | - | - | 36 | 37,691 |
Leasehold improvements | 41,956 | 952 | - | (93) | - | (267) | 192 | 42,740 |
Real Estate | 3,350 | - | - | - | - | - | - | 3,350 |
Land and others | 1,006 | - | - | - | - | - | - | 1,006 |
Total | 167,584 | 6,999 | 15,561 | (207) | (982) | 90 | 416 | 189,461 |
(*) In the statement of cash flow, only additions with cash disbursement are being considered as investment activities on the amount of R$ 6,012.
(**) Amounts related to update of IAS 29 (hyperinflation) in Napse Argentina
|
| Accumulated depreciation | |||||||
Annual depreciation rate | Balance at 12/31/2019 | Addition | Addition - acquisition (*) | Write-offs | Transfers | Foreign exchange | Balance at 03/31/2020 | ||
|
|
|
|
| |||||
Computers and electronics | 20% | (36,659) | (2,192) | (5.288) | - | 56 | (101) | (44,184) | |
Vehicles | 20% | (5,437) | (431) | - | 902 | 2 | (5) | (4,969) | |
Furniture and fixtures | 10% | (6,818) | (348) | (27) | - | (16) | (11) | (7,220) | |
Facilities, machinery and equipment | 10% | (17,142) | (778) | (12) | - | (15) | (17) | (17,964) | |
Leasehold improvements | 10% | (18,523) | (884) | - | - | (442) | (57) | (19,906) | |
Real Estate | 4% | (804) | (33) | - | - | - | - | (837) | |
Total |
| (85,383) | (4,666) | (5.327) | 902 | (415) | (191) | (95,080) | |
27
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Based on the annual impairment test of the assets of the Company and its subsidiaries, prepared with the projections made on the financial statements as of December 31, 2019, growth perspectives and operating income (loss) for the year ended December 31, 2019, no losses or indicative losses were identified, since the value in use is higher than the net book value at the valuation date. The assumptions used are disclosed in Note 13.
13. Intangible
03/31/2020 |
| 12/31/2019 | |||
Cost | Accumulated amortization | Net value |
| Net value | |
|
|
| |||
Software (i) | 100,207 | (52,231) | 47,976 |
| 47,187 |
Software development (ii) | 25,976 | - | 25,976 |
| 22,729 |
Software developed (iii) | 199,473 | (156,896) | 42,577 |
| 38,989 |
Software development – capitalized interest | 25,090 | (9,348) | 15,742 |
| 12,455 |
Brands acquired | 46,205 | (5,277) | 40,928 |
| 41,162 |
Technology - acquisitions | 143,733 | (107,552) | 36,181 |
| 39,471 |
Client portfolio - acquisitions | 158,268 | (82,317) | 75,951 |
| 79,761 |
Goodwill | 914,422 | - | 914,422 |
| 727,558 |
Other | 2 | - | 2 |
| 2 |
Total (*) | 1,613,376 | (413,621) | 1,199,755 |
| 1,009,314 |
(*) The amounts presented include R$ 179,839 (R$ 9,841 as of December 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
(i) Software acquired for use by the company employees and for software development routines
(ii) Software under development that is not yet being marketed
(iii) Development of software under an innovation process that has already been marketed
The financial activity of intangible asset balances is described below:
|
| Cost | |||||||
Balance at 12/31/2019 | Addition (*) | Addition - acquisition | Business combination (**) | IAS 29 (***) | Transfers | Foreign exchange | Balance at 03/31/2020 | ||
|
|
| |||||||
Software (i) | 95,280 | 3,503 | 34 | - | 225 | (10) | 1,175 | 100,207 | |
Software development (ii) | 22,729 | 3,247 | - | - | - | - | - | 25,976 | |
Software developed (iii) | 188,854 | 10,619 | - | - | - | - | - | 199,473 | |
Software development – capitalized interest | 20,569 | 4,521 | - | - | - | - | - | 25,090 | |
Brands acquired | 46,199 | - | 6 | - | - | - | - | 46,205 | |
Technology - acquisitions | 143,735 | - | - | - | - | - | (2) | 143,733 | |
Client portfolio - acquisitions | 158,268 | - | - | - | - | - | - | 158,268 | |
Goodwill | 727,558 | - | - | 186,864 | - | - | - | 914,422 | |
Other | 2 | - | - | - | - | - | - | 2 | |
Total | 1,403,194 | 21,890 | 40 | 186,864 | 225 | (10) | 1,173 | 1,613,376 | |
(i) Software acquired for use by the company employees and for software development routines
(ii) Software under development that is not yet being marketed
(iii) Development of software under an innovation process that has already been marketed
(*) In the cash flow statement, only additions that had a cash disbursement in the amount of R $ 20,580 are considered as investment activities.
(**) Amounts related to goodwill, customer portfolio and technology in the acquisitions of the companies PinPag and Neemo in fiscal year 2020
(***) Amounts related to update of IAS 29 (hyperinflation) in Napse Argentina.
28
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
| Accumulated amortization | ||||||
Annual rate of amortization | Balance at 12/31/2019 | Addition | Addition - acquisition (*) | Transfers | Foreign exchange | Balance at 03/31/2020 | |
|
|
|
| ||||
Software (i) | 10–20% | (48,093) | (3,709) | (7) | 335 | (757) | (52,231) |
Software developed (ii) | 33% | (149,865) | (7,031) | - | - | - | (156,896) |
Software development – capitalized interest | 33% | (8,114) | (1,234) | - | - | - | (9,348) |
Brands acquired | 10–20% | (5,037) | (240) | - | - | - | (5,277) |
Technology - acquisitions | 10–20% | (104,264) | (3,288) | - | - | - | (107,552) |
Client portfolio - acquisitions | 20–50% | (78,507) | (3,810) | - | - | - | (82,317) |
Total |
| (393,880) | (19,312) | (7) | 335 | (757) | (413,621) |
(i) Software acquired for use by the company employees and for software development routines
(ii) Development of software under an innovation process that has already been marketed
13.1Goodwill impairment testing
The Company and its subsidiaries tested goodwill for impairment using the concept of value in use, under the discounted cash flow methodology.
The process for determining the value in use involved the use of assumptions, judgments and estimates on cash flows, such as revenue growth rates, costs and expenses, investment estimates and future working capital and discount rates. Assumptions about cash flow growth projections were based on management’s estimates, market studies and macroeconomic projections. Future cash flows were discounted based on the weighted average cost of capital (WACC).
Following the techniques of economic valuation, the assessment of value in use was carried out for a period of 5 years and, thereafter, considering the perpetuity of the assumptions based on the ability of the company to continue as a going concern for the foreseeable future. Management deemed the use of the 5-year period appropriate, based on its past experience in preparing the projections of its cash flows. Such understanding is in accordance with paragraph 35 of CPC 01 (R1) - Asset impairment.
In 2019 the growth rate used to extrapolate the projections beyond the 5-year period was 5.5%, which refers to the perpetuity growth corresponding to the expected long-term inflation of Bacen (Central Bank of Brazil), plus of 1% real growth. In 2019 the estimated future cash flows were discounted at the pre-tax discount rate of 13.69%, also at nominal values.
In 2019 the annual inflation rate for the period analyzed in the projected flows was 3.52%.
29
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Key assumptions were based on the historical performance of the Company and its subsidiaries, on reasonable macroeconomic assumptions, and on financial market projections documented and approved by Company management.
Based on the annual impairment test of the intangible assets of the Company and its subsidiaries, prepared with the projections made on the financial statements as of December 31, 2019, growth perspectives and operating income (loss) for the year ended December 31, 2019, no losses or indicative losses were identified, since the value in use is higher than the net book value at the valuation date.
Value in use calculation is mainly impacted by the following assumptions:
Growth of revenue: this is based on the observation of the historical behavior of each revenue line as well as trends based on market analysis. Revenue projections refer to non-recurring lines (implementation consultancy and royalties for the use of its licenses), and recurring lines (contractual - related to the collection of system maintenance fees, with an annual restatement forecast), where the Company and its subsidiaries considered an annual growth between 9% and 18% for the next 5 years.
The costs of the Company and its subsidiaries were projected considering the maintenance of the gross margin, which varies between 72% and 74%.
Capex volume: CAPEX investment needs were projected in line with historical indexes and sufficient to support the growth of operations.
Discount rates: represent the risk assessment in the current market. The calculation of the discount rate is based on specific circumstances of the Company, and derives from:
Weighted average cost of capital (WACC): which takes into account both debt and shareholders’ equity. The cost of shareholders’ equity derives from the expected return on investment by the Company’s investors. The cost of debt is based on the financing with interest income that the Company and its subsidiaries are required to honor.
Financial Asset Pricing Model: which takes into account the sensitivity of the asset to non-diversifiable risk (also known as systemic risk or market risk), represented by the variable known as beta index or beta coefficient (β), as well as the expected return on the market and the expected return on a risk-free asset.
13.2Software development
The activity of the subsidiary Linx Sistemas e Consultoria Ltda. assumes the continuous development of new systems and applications aimed at increasing the range of options to the current clients and potential new clients, in view of the increasing market demand for computerized solutions for the businesses in general. In this context, several projects intended for client systems and applications are being developed. The amounts recorded in intangibles correspond to portion of the cost of the project development department, determined based on the number of hours of the respective employees. Each project isamortized as from the moment the asset is available for use for an average period of three years, which is management’s estimate of the expected period of financial return of the projects. The amortization of software developed for internal application was recorded in general and administrative expenses and amortization of software developed for customer use was recorded in cost of services.
30
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
In the period ended March 31, 2020, the amount of R$ 29,522 (R$ 18,372 on March 31, 2019) was recognized in income (loss) and was related to research and maintenance of the developed software.
14. Right of use
12/31/2019 | Addition (***) | Amortization (**) | Exchange variation | 03/31/2020 | |
| |||||
Rent | 73,482 | 4,582 | (3,305) | 583 | 75,342 |
Equipment | 5,180 | - | (252) | - | 4,928 |
Cloud (*) | 45,377 | 4,273 | (8,646) | - | 41,004 |
Total | 124,039 | 8,855 | (12,203) | 583 | 121,274 |
(*) Rental of cloud space
(**) Average annual depreciation rate 10 to 33%
(***) The Company and its subsidiaries applied exceptions to the standard for short-term and low-value contracts, recorded in rental expenses in the amount of R$ 251 on March 31, 2020
15. Loans and financing
Consolidated | ||||||
Type | Charges | Effective rate | Maturity | Covenants | 03/31/2020 | 12/31/2019 |
| ||||||
Loan - BNDES | IPCA + 3.10% p.a. + Spread 1.37% p.a | 7.873% p.a. | 12/15/2027 | 15.1 (a) | 147,523 | 147,585 |
Loan - BNDES | TJLP + 1.67% p.a. | 6.893% p.a. | 02/15/2021 | 15.1 (b) | 24,414 | 31,078 |
Loan - BNDES | TJLP + 1.96% p.a. | 7.188% p.a. | 03/15/2022 | 15.1 (c) | 27,502 | 30,945 |
Loan - Itaú | TJLP + 7.20% p.a. | 12.653% p.a. | 04/15/2021 |
| - | 165 |
Other |
|
|
|
| 397 | 409 |
| 199,836 | 210,182 | ||||
|
|
|
|
|
|
|
Current liabilities | 38,688 | 41,245 | ||||
Non-current liabilities | 161,148 | 168,937 |
Prevailing loan contracts do not have assets pledged in guarantee.
The amount classified in non-current liabilities will be paid as follows:
Consolidated | ||
Period | 03/31/2020 | 12/31/2019 |
| ||
2021 | 31,262 | 39,216 |
2022 | 24,543 | 24,474 |
2023 | 21,043 | 21,043 |
2024 | 21,043 | 21,043 |
2025 | 21,043 | 21,043 |
2026 | 21,043 | 21,043 |
2027 | 21,171 | 21,075 |
| 161,148 | 168,937 |
31
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Changes are shown below:
Consolidated | ||
| 03/31/2020 | 12/31/2019 |
| ||
Previous balance | 210,182 | 249,981 |
Funds from acquisition of subsidiaries | - | 443 |
Additions of loans and financing | 928 | 410 |
Financial charges | 5,485 | 18,418 |
Financial charges paid | (5,475) | (16,896) |
Payments of loans and financing | (11,284) | (42,174) |
Total | 199,836 | 210,182 |
15.1. Covenants
(a) BNDES loan raised on December 13, 2018 has covenant for early debt payment. The following indices should be determined on a half-annual basis in consolidated financial statements:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0.
In order to determine the indices, the following definitions and criteria should be adopted:
· General indebtedness: Total current and non-current liabilities;
· Net debt: The total balance of consolidated onerous debts of the Intervening Party, including: loans and financing; loans; issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market; and the sale or assignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents (cash and financial assets).
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
In the hypothesis that levels established in the item VII of the Clause Nine (Obligations of the Intervening Parent Company) are not met, the Company must present, within 120 days counted as of notification date, in written, from BNDES, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of March 31, 2020, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
32
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
(b) BNDES loan raised on October 28, 2014 has covenant for early debt payment. During the contractual period, two of the following ratios, calculated semi-annually in the consolidated statements, should be maintained:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0;
(iii) EBITDA / Net operating revenue: equal or higher than 20%.
In order to determine the indices, the following definitions and criteria should be adopted:
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
· Net debt: balances of the consolidated onerous debts, including loans and financing; loans, issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market, and the sale or assignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents. In order to calculate this ratio, we will not consider the amounts classified as Accounts payable for the acquisition of subsidiaries in the balance sheet as Net Debt.
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of March 31, 2020, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
(c) BNDES loan raised on December 11, 2015 has covenant for early debt payment. During the contractual period, two of the following ratios, calculated semi-annually in the consolidated statements, should be maintained:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0;
(iii) EBITDA / Net operating revenue: equal or higher than 20%.
33
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
In order to determine the indices, the following definitions and criteria should be adopted:
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
· Net debt: Balances of the consolidated onerous debts, including loans and financing; loans, issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market, and the sale or assignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents. In order to calculate this ratio, we will not consider the amounts classified as Accounts payable for the acquisition of subsidiaries in the balance sheet as Net Debt.
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of March 31, 2020, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
16. Lease payable
| Consolidated | ||
Rate | 03/31/2020 | 12/31/2019 | |
|
| ||
Lease of property | 10.27% | 79,431 | 76,995 |
Equipment rental | 10.27% | 4,314 | 4,975 |
Lease of cloud | 8.73% | 26,234 | 44,112 |
|
| 109,979 | 126,082 |
|
|
|
|
Current liabilities |
| 38,318 | 47,478 |
Non-current liabilities |
| 71,661 | 78,604 |
Changes in lease liabilities payable are:
Balance at 12/31/2019 | Additions | Payments | Interest restatement | Exchange variation | Balance at 03/31/2020 | |
Lease of property | 76,995 | 4,279 | (4,738) | 2,101 | 794 | 79,431 |
Equipment rental | 4,975 | - | (736) | 75 | - | 4,314 |
Lease of cloud | 44,112 | 4,639 | (26,046) | 512 | 3,017 | 26,234 |
Total liabilities from financing activities | 126,082 | 8,918 | (31,520) | 2,688 | 3,811 | 109,979 |
34
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
As at March 31, 2020, leases have average payment term of 4.2 years (December 31, 2019 – 5.4 years).
The amount classified in non-current liabilities will be paid as follows:
Consolidated | ||
Period | 03/31/2020 | 12/31/2019 |
|
| |
2021 | 14,649 | 26,487 |
2022 | 17,934 | 16,398 |
2023 | 17,934 | 16,398 |
2024 | 9,537 | 8,777 |
2025 | 8,777 | 8,777 |
2026 | 8,777 | 8,777 |
2027 | 8,777 | 8,777 |
2028 | 8,777 | 8,777 |
2029 | 685 | 687 |
Lease payment | 95,847 | 103,855 |
Financial charges | (24,186) | (25,251) |
Present value of lease payments | 71,661 | 78,604 |
17. Labor liabilities
| Parent company | Consolidated | ||
| 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||
Provision for vacation, 13th salary and payroll charges | - | - | 37,099 | 32,415 |
INSS payable | 20 | 20 | 7,496 | 7,523 |
Provision for profit sharing | - | - | 4,016 | 5,426 |
FGTS payable | - | - | 1,901 | 2,584 |
Salaries payable | - | - | 2,086 | 1,901 |
Other | - | - | 4,921 | 3,208 |
| 20 | 20 | 57,519 | 53,057 |
|
|
|
| |
Current liabilities | 20 | 20 | 55,682 | 51,080 |
Non-current liabilities | - | - | 1,837 | 1,977 |
18. Accounts payable from acquisition of subsidiaries
Accounts payable from the acquisitions of subsidiaries refer to amounts due to the previous owners for the acquisition of shares or quotas representing the capital of these companies. Debts are restated under contractual clauses and mature as follows:
35
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
| Consolidated | |
| 03/31/2020 | 12/31/2019 |
| ||
Installments not subject to restatement (*) | 91,281 | 57,246 |
Napse installments subject to restatement based on exchange-rate change and LIBOR. | 12,999 | 16,960 |
Installments subject to restatement based on the change in the CDI rate – 3.65% | 316 | 284 |
Installments subject to restatement based on the change of IPCA – 3.30% | 19,471 | 12,666 |
Installments subject to restatement based on the change of IGPM – 6.82% | 8,392 | 8,253 |
Adjustment to present value (**) | (10,412) | (12,340) |
| 122,047 | 83,069 |
|
|
|
Current liabilities | 87,857 | 43,432 |
Non-current liabilities | 34,190 | 39,637 |
(*) Amounts related to fixed monthly contractual installments and estimated of earn-outs (reviewed on annual basis)
(**) Amounts related to the APV on the fixed monthly contractual installments and earn-outs
The amount classified in non-current liabilities will be amortized following the schedule below:
Consolidated | ||
Period | 03/31/2020 | 12/31/2019 |
| ||
2021 | 8,554 | 23,691 |
2022 | 17,905 | 11,715 |
2023 | 2,911 | 4,231 |
2024 | 1,557 | - |
2025 | 3,263 | - |
| 34,190 | 39,637 |
Of total amount payable on March 31, 2020, R$ 120.888 is related to contingent consideration (R$ 83,032 as of December 31, 2019). The Company and its subsidiaries expect to fully settle amounts related to contingent considerations, and there were no significant changes in expectations in relation to prior year. The fair value of these obligations also considered a market interest rate (Selic). Fair value hierarchy of contingent consideration is classified as level 3 (Note 28.7).
The changes in the consolidated are shown as follow:
| Consolidated | |
| 03/31/2020 | 12/31/2019 |
| ||
Previous balance | 83,069 | 112,487 |
Addition due to acquisition (*) | 52,661 | 54,723 |
Payment of principal/financial charges paid | (18,672) | (48,093) |
Restatement of financial charges | 5,875 | 11,108 |
Contingencies (**) | (725) | (7,773) |
Earn-Out (***) | (161) | (39,383) |
| 122,047 | 83,069 |
(*) Additions for acquisitions, of which R$ 48,935 PinPag, R$ 3,726 for Neemo
(**) Contingencies arising from the acquired companies, offset by the amounts that the Company and its subsidiaries have to pay to former management
(***) The amounts refer to reversal of unachieved earn-out goals of the acquirees Sback and Único
36
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
19. Deferred revenue
Consolidated | ||
03/31/2020 | 12/31/2019 | |
Revenue from services (*) | 18,316 | 18,457 |
Revenue from royalties (**) | 19,003 | 24,337 |
37,319 | 42,794 | |
|
| |
Current liabilities | 32,193 | 36,360 |
Non-current liabilities | 5,126 | 6,434 |
(*) It is related to hours contracted by the clients for rendering of services, recognition is carried out after provision of service and write-off of service card.
(**) Refers to balances of software contracts’ (royalties) deferral deriving from first-time adoption of IFRS 15/CPC 47 and subsequent changes.
20. Income tax and social contribution
20.1. Income tax and social contribution expense
Parent company | Consolidated | |||
| 03/31/2020 | 03/31/2019 | 03/31/2020 | 03/31/2019 |
|
|
| ||
Current tax |
|
| ||
Current tax on income for the period | (1,044) | - | (3,574) | (2,025) |
|
|
|
|
|
Deferred tax |
|
|
|
|
Deferred tax on income for the period | (684) | 14 | 2,707 | (4,368) |
|
|
|
|
|
Income tax and social contribution expense | (1,728) | 14 | (867) | (6,393) |
The reconciliation between the tax expense as calculated by the combined nominal rates and the income tax and social contribution expense charged to income (loss) is presented below:
Parent company | Consolidated | |||
| 03/31/2020 | 03/31/2019 | 03/31/2020 | 03/31/2019 |
|
|
|
|
|
Income (loss) before income tax and social contribution | (7,326) | 17,166 | (8,187) | 23,573 |
|
|
|
|
|
Rate income tax and social contribution | 34% | 34% | 34% | 34% |
|
|
|
|
|
Income tax and social contribution at the rate of 34% | 2,491 | (5,836) | 2,784 | (8,015) |
|
|
|
|
|
Permanent differences |
|
|
|
|
Equity in net income of subsidiaries | (4,004) | 5,969 | - | - |
Law 11196/05 (Research and Development incentive) | - | - | - | 2,124 |
Payment of interest on own capital | - | (162) | - | (399) |
Gifts, fines and nondeductible expenses | - | 60 | (55) | 119 |
Overseas earnings | - | - | (1,566) | - |
Income tax and social contribution determined by the deemed income | - | - | (247) | (647) |
Effects of tax rates of foreign subsidiaries | - | - | (1,631) | 949 |
Other net differences | (215) | (17) | (152) | (524) |
|
|
|
|
|
Income tax expense for effective rate | (1,728) | 14 | (867) | (6,393) |
|
|
|
|
|
Effective rate | - | 0.08% | - | 27.12% |
37
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
20.2. Deferred taxes
Deferred income tax and social contribution are recorded so as to reflect future tax effects on temporary differences existing between assets and liabilities tax base and the corresponding carrying amount.
Temporary deferred income tax and social contribution are as follows:
| Parent company | Consolidated | ||
Assets | 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||
Deferred IR/CS on tax loss and negative basis | 1,223 | 1,665 | 1,628 | 1,665 |
Stock option plan | - | 555 | - | 555 |
Inc. tax and soc. contr. on foreign companies | - | - | 460 | 841 |
Estimated losses with doubtful accounts | - | - | 27 | - |
Deferred income tax/social contribution on first-time adoption of IFRS 9 and IFRS 15 | - | - | 14 | 12 |
Provision for adjustment to present value | - | - | 361 | 284 |
Other Provisions | 313 | - | 313 | - |
Total deferred income tax and social contribution, net (assets) | 1,536 | 2,220 | 2,803 | 3,357 |
| Consolidated | |
Liabilities | 03/31/2020 | 12/31/2019 |
| ||
Deferred income tax and social contribution on accounting and tax goodwill | (104,604) | (97,593) |
Deferred income tax/ social contribution assets identified in acquisitions | (23,626) | (25,092) |
Deferred income tax/social contribution on first-time adoption of IFRS 9 and IFRS 15 | 6,353 | 8,228 |
Deferred income tax and social contribution on IFRS 16/CPC 06 (R2) | (1,619) | 3,538 |
Inc. tax and soc. contr. on foreign companies | (743) | (705) |
Deferred IR/CS on tax loss and negative basis | 20,694 | 7,138 |
Estimated losses with doubtful accounts | 607 | 108 |
Provision of benefits to employees | 446 | 446 |
Provision for contingencies | 1,859 | 1,779 |
Provision for adjustment to present value | 5,276 | 4,678 |
Stock option plan | 10,529 | 9,925 |
Provision for profit sharing and gainsharing, bonus, collective bargaining and overtime | 2,303 | 2,102 |
Other provisions | 1,183 | 1,242 |
Total deferred income tax and social contribution, net (liabilities) | (81,342) | (84,206) |
20.3. Recoverability of income tax and social contribution loss carryforward
| Expected realization | |
Year | Parent company | Consolidated |
2020 | 1.223 | 1,628 |
2021 | - | 2,454 |
2022 | - | 7,690 |
2023 | - | 10,550 |
Total | 1.223 | 22,322 |
38
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
21. Other liabilities
Parent company | Consolidated | ||||
03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 | ||
Accounts payable to commercial establishments (*) | - | - | 61,185 | 80,411 | |
Accounts payable to former shareholders (**) | - | - |
| 16,000 | - |
Interest on prepayment for assignment of receivables (*) | - | - | - | 5,207 | |
Advance of clients | 36 | 36 | 1,253 | 1,590 | |
Post-employment benefit (**) | - | - | 1,311 | 1,311 | |
Installment payment of taxes and contribution | - | - | 438 | 619 | |
Other (***) | 1,034 | 1,034 | 4,931 | 5,307 | |
1,070 | 1,070 | 85,118 | 94,445 | ||
|
|
| |||
Current liabilities | 1,070 | 1,070 | 83,888 | 89,576 | |
Non-current liabilities | - | - | 1,230 | 4,869 |
The amounts presented include R$ 75,154 (R$ 85,702 as of December 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
(*) Amounts related to the transaction of Linx Pay and its subsidiaries.
(**) Changes arising from the change in the number of eligible participants, monetary updating of medical costs and updating of the set of actuarial assumptions.
(***) It substantially corresponds to other Napse’s liabilities in the amount of R$ 4,018 (R$ 3,584 as of December 31, 2019).
22. Shareholders' equity
22.1. Capital
The Company is authorized to increase capital by up to R$1,000,000, regardless of its Bylaws’ reform, following the Board of Directors’ decision.
Capital is solely represented by common shares and each of them corresponds to a vote in Shareholders’ Meeting decisions.
Board of Directors is the competent body to decide on issuances and will determine issuance conditions, subscription, payment form and deadline, price per share, placement form (public or private) and its distribution in Brazil and/or abroad.
39
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
At the criteria of the Board of Directors, the share issue may be made, without right of preference or with a reduction of the time frame addressed by article 171, §4 of Law 6404, dated December 15, 1976, as amended (“Corporation Law”) of shares and debentures that are convertible into shares or a subscription bonus, the flotation of which is made through a sale on the stock exchange or by public subscription, or even through an exchange for shares in a takeover bid, in the terms established in law, within the limits of the authorized capital.
Capital is represented by authorized, subscribed and fully paid-up shares with no par value and is divided as follows:
March 31, 2020 | December 31, 2019 | ||||
Shares | % | Shares | % | ||
Founding shareholders | 26,982,764 | 14.25% |
| 26,982,764 | 14.24% |
GIC Private Limited. | 13,115,774 | 6.92% |
| 18,900,432 | 9.98% |
Genesis Asset Managers | 15,663,314 | 8.27% |
| 10,124,454 | 5.35% |
| 11,285,014 | 5.96% |
| - | - |
BlackRock Inc. | - | - |
| 9,950,316 | 5.25% |
BNDES Participações S.A. – BNDES | 11,107,088 | 5.86% |
| - | - |
Treasury shares | 11,839,567 | 6.25% |
| 9,869,772 | 5.21% |
Other | 99,415,439 | 52.49% |
| 113,581,222 | 59.97% |
| 189,408,960 | 100% |
| 189,408,960 | 100% |
|
|
|
|
|
|
Capital | 645,447 |
|
| 645,447 |
|
Treasury shares
On March 9, 2020, the opening of a Company Share Buyback program was approved, aiming to maximize the generation of shareholder value through an efficient management of the capital structure, through the acquisition of common shares of its own issue, to remain in treasury, bonus or subsequent sale in the market, cancellation, without reducing the Company's capital, in compliance with the disposed of paragraph 1 of article 30 of the Corporation Law, and in the rules set forth in ICVM 567/2015 and may also serve the exercise of the deferred share programs and eventually stock option programs.
For this new Share Buyback program, the Company may, at its exclusive criteria and under of the terms of the Buyback Program, to acquire up to 8,100,000 (eight million and one hundred thousand) common shares, registered, book-entry and without par value, issued by the Company, corresponding to up to 4.28% of the total shares issued by the Company and up to 4.51% of the Outstanding Shares.
In the period ended March 31, 2020, the amount of treasury shares is R$ 270,513 (R$ 225,954 on December 31, 2019).
22.2. Capital reserves
The capital reserve is set up as follows:
| 03/31/2020 | 12/31/2019 |
|
|
|
Goodwill in capital subscription (a) | 1,222,025 | 1,222,025 |
Stock option plan (Note 29) | 41,517 | 39,737 |
Expenditures with issuance of shares (b) | (96,157) | (96,157) |
| 1,167,385 | 1,165,605 |
(a) In compliance with 6,404/76, the issue price of the shares without par value may be allocated as part of the capital reserve. On June 26, 2019, based on the global offering of shares, there was a goodwill on capital subscription of R$ 682,454.
(b) In conformity with Pronouncement IFRS 9/CPC 48 – Financial instruments, transaction costs incurred on funding through issuance of new shares were recorded separately as a reduction to shareholders' equity.
40
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
22.3. Legal reserve
It is formed of 5% of net income for the fiscal year, in conformity with article 193 of Law No. 6,404/76, up to the limit of 20% of the capital.
For the year ended December 31, 2019, pursuant to paragraph 1 of article 193 of Law 6404/76, the Company did not set up a legal reserve, as the capital reserve amount exceeded the percentage of 30% of capital.
23. Provision for contingencies
The Company and its subsidiaries are parties (defendants) to judicial and administrative proceedings in various courts and governmental agencies, arising from the normal course of operations, involving tax, labor, civil and other issues.
At March 31, 2020, Management, based on information provided by its legal advisors, keep a provision amounting to R$ 19,904 (R$ 19,588 at December 31, 2019).
There are other lawsuits evaluated by legal advisors as being a possible risk in the amount of R$ 51,583 as of March 31, 2020 (R$62,887 as of December 31, 2019), for which no provision has been formed and management does not believe at this time it is more likely than not that a present obligation exists at the end of the reporting period.
As a result of state government inspection procedures carried out in 2018, an infraction notice was drawn up based on the understanding that the Company would have performed rental of equipment and data center spaces in the period between January 2014 and December 2015, on the grounds that said operations would be telecommunication services and would, therefore, be subject to the levy of ICMS tax at the rate of 25%, plus a fine equivalent to 50% of the updated amount of said tax for the failure to issue tax documents in these operations. The restated amount for this lawsuit in the year ended March 31, 2020 is R$ 38,601 (R$ 38,387 on December 31, 2019) included in the position of possible risk aforementioned.
The possible contingencies of the acquired companies will be guaranteed by the former owners according to contracts of purchase and sale. The Company and its subsidiaries have sufficient amounts held to meet these commitments, classified under other assets in the balance sheet, based on diligences carried out during the acquisition process.
| Consolidated | |||
Change | Labor | Civil | Tax | Total |
Balance at December 31, 2019 | 9,203 | 1,627 | 8,758 | 19,588 |
Additions | 1,119 | 310 | - | 1,429 |
Write-offs | (961) | (192) | (114) | (1,267) |
Restatement | 110 | 44 | - | 154 |
Balance at March 31, 2020 | 9,471 | 1,789 | 8,644 | 19,904 |
41
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
24. Net operating revenue
Below, we show the reconciliation between gross and net revenue presented in the statement of income for the period:
Consolidated | ||
03/31/2020 | 03/31/2019 | |
Gross operating revenue | ||
Subscription revenues | 202,176 | 180,515 |
Consulting service revenues | 35,481 | 21,976 |
237,657 | 202,491 | |
|
| |
Sales deductions |
|
|
PIS | (1,414) | (1,165) |
COFINS | (6,525) | (5,378) |
ISS | (5,691) | (4,648) |
INSS (Social security) | (8,601) | (7,399) |
Other | (1,512) | (1,159) |
Cancellations | (5,383) | (5,937) |
(29,126) | (25,686) | |
|
| |
Total (*) | 208,531 | 176,805 |
(*) The amounts presented include R$ 9,898 (R$ 1,128 as of March 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries.
The Company and its subsidiaries do not have clients that individually represents more than 10% of revenue for periods ended March 31, 2020 and March 31, 2019.
Table below presents geographical information as required by IFRS 8/CPC 22 – information per segment.
Geographical information | ||
03/31/2020 | 03/31/2019 | |
Net revenue |
| |
In Brazil | 198,683 | 167,775 |
Abroad | 9,848 | 9,030 |
208,531 | 176,805 | |
|
| |
Assets |
|
|
In Brazil | 2,489,954 | 1,715,801 |
Abroad | 40,418 | 33,059 |
2,530,372 | 1,748,860 | |
|
|
|
Liabilities |
|
|
In Brazil | 779,486 | 653,700 |
Abroad | 19,801 | 18,645 |
| 799,287 | 672,345 |
42
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
25. Costs
Consolidated | ||
03/31/2020 | 03/31/2019 | |
Type | ||
Personnel | (40,802) | (33,884) |
Depreciation and amortization | (14,877) | (13,076) |
Outsourced services | (9,187) | (4,744) |
Expenses with link | (6,947) | (7,240) |
Travel and accommodation | (1,023) | (924) |
Other | - | (131) |
Total(*) | (72,836) | (59,999) |
(*) The amounts presented include R$ 1,252 (R$ 8 as of March 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries
26. Expenses and other expenses / revenues
Parent company | Consolidated | ||||
03/31/2020 | 03/31/2019 | 03/31/2020 | 03/31/2019 | ||
Type | |||||
Other revenues | - | - |
| 417 | 8,124 |
Personnel | (315) | (978) |
| (66,933) | (54,076) |
Depreciation and amortization (**) | - | - |
| (21,485) | (11,271) |
Outsourced services | (93) | (31) |
| (16,899) | (10,551) |
Commissions | - | - |
| (9,801) | (9,310) |
Travel and accommodation | (5) | - |
| (2,452) | (2,144) |
Advertising and publicity | - | - |
| (4,675) | (3,080) |
Maintenance and preservation | - | - |
| (2,989) | (3,718) |
Possible losses | - | - |
| (3,101) | (1,736) |
Rents | - | - | (1,987) | (28) | |
IT expenses | - | - | (444) | (917) | |
Expenses with link | - | - |
| (389) | (9) |
Other | (469) | (239) | (3,975) | (2,753) | |
(882) | (1,248) | (134,713) | (91,469) | ||
|
|
|
| ||
Function |
|
|
|
| |
Administrative and general expenses | (882) | (1,248) | (65,500) | (43,962) | |
Sales expenses | - | - | (36,697) | (35,325) | |
Research and maintenance of software developed | - | - | (29,552) | (18,372) | |
Other operating revenue (expenses) | - | - | (2,964) | 6,190 | |
Total (*) | (882) | (1,248) | (134,713) | (91,469) |
(*) The amounts presented include R$ 9,272 (R$ 48 as of March 31, 2019) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries
(**) The amount corresponding to the amortization of the right-of-use totals R$ 11,902
43
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
27. Financial income
Parent Company | Consolidated | ||||
03/31/2020 | 03/31/2019 | 03/31/2020 | 03/31/2019 | ||
Financial revenues | |||||
Interest on financial assets | 5,465 | 878 |
| 6,873 | 6,113 |
Foreign exchange gain | 197 | - |
| 3,546 | 3,616 |
Interest receivable | - | - | 820 | 802 | |
Discounts obtained | - | - | 158 | 73 | |
Other revenues | - | 45 | 1,225 | 1,263 | |
5,662 | 923 | 12,622 | 11,867 | ||
|
|
|
| ||
Financial expenses |
|
|
|
| |
Foreign-exchange losses | (192) | - |
| (4,926) | (3,256) |
Liability interest | - | - | (3,080) | (906) | |
Discount granted | - | - |
| (3,798) | (2,413) |
Interest on loans and financing | - | - | (834) | (2,304) | |
Tax on financial operations | - | - |
| (266) | (242) |
Effect from IAS 29 adoption | - | - |
| (2,679) | (538) |
Other expenses (*) | (137) | (66) |
| (6,208) | (3,972) |
(329) | (66) | (21,791) | (13,631) | ||
|
|
|
| ||
Financial results (**) | 5,333 | 857 | (9,169) | (1,764) |
(*) Refers mainly to the realization of AVP on amounts related to business combination and bank expenses
(**) The amounts presented include R$ 1,510 (R$ 51 as of March 31, 2020) related to Linx Pay Meios de Pagamento Ltda. and its subsidiaries
28. Financial risk management
The Company and its subsidiaries are exposed to the following risks from the use of financial instruments:
· Credit risk
· Liquidity risk
· Market risk
· Operating risk
28.1. Credit risk
Credit risk is the possibility of financial loss of the Company and its subsidiaries if a client or a counterpart of a financial instrument fails to fulfill its contractual obligations arising mainly from trade accounts receivable and investments of its subsidiaries.
The exposure of the Company and its subsidiaries to credit risk is influenced, mainly, by the individual characteristics of each client. The Company and its subsidiaries established a credit policy whereby every new client has its credit capacity individually analyzed prior to the standard payment terms and conditions.
44
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
The Company and its subsidiaries have a very diversified client portfolio with low concentration level, and major client represents only 2.21% of recurring revenue.
The subsidiaries establish an estimated provision for losses that represents its estimate of losses incurred in relation to trade accounts receivable (See Note 7). The main component of this allowance is specific and related to significant individual risks.
On March 31, 2020, maximum exposure related to cash and cash equivalents, financial assets and accounts receivable.
| Parent company | Consolidated | ||
| 03/31/2020 | 12/31/2019 | 03/31/2020 | 12/31/2019 |
| ||||
Cash and cash equivalents (note 5) | 521 | 16,387 | 66,344 | 75,898 |
Financial assets (Note 6) | 559,512 | 732,473 | 675,768 | 904,362 |
Trade accounts receivable (Note 7) | - | - | 270,169 | 288,111 |
| 560,033 | 748,860 | 1,012,281 | 1,268,371 |
28.2. Liquidity risk
Liquidity risk is the risk of the Company and its subsidiaries encountering difficulties in performing the obligations associated with its financial liabilities that are settled with cash payments or with another financial asset. The approach of the Company and its subsidiaries in liquidity management is to guarantee, as much as possible, that will always have sufficient liquidity to perform their obligations upon maturity, under normal and stress conditions, without causing unacceptable losses or with a risk of sullying the reputation of the Company and its subsidiaries.
The table below shows the maturity of financial liabilities contracted in details:
Parent company | ||||
Operation | Up to 1 year | Up to 2 years | 3–5 years | Total |
Suppliers | 390 | - | - | 390 |
Other liabilities (Note 21) | 1,070 | - | - | 1,070 |
1,460 | - | - | 1,460 |
Consolidated | |||||
Operation | Up to 1 year | Up to 2 years | 3–5 years | >5 years | Total |
|
|
|
|
|
|
Suppliers | 20,654 | - | - | - | 20,654 |
Loans and financing (Note 15) | 38,688 | 31,262 | 66,629 | 63,257 | 199,836 |
Lease payable (Note 16) | 38,318 | 14,649 | 45,405 | 35,793 | 134,165 |
Accounts payable for the acquisition of subsidiaries - Earn Outs (Note 18) | 74,284 | 15,713 | 4,231 | - | 94,228 |
Accounts payable for the acquisition of subsidiaries – retained installments (Note 18) | 13,138 | 17,719 | 2,951 | 3,263 | 37,071 |
Accounts payable for the acquisition of subsidiaries – Other (Note 18) | 435 | 725 | - | - | 1,160 |
Other liabilities (Note 21) | 83,888 | 1,230 | - | - | 85,118 |
| 269,405 | 81,298 | 119,216 | 102,313 | 572,232 |
45
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
As amounts included in this table are non-discounted cash flows, they will not be reconciled to the amounts disclosed in the balance sheet for lease payable and accounts payable for acquisition of subsidiaries.
Typically, the Company and its subsidiaries ensure that they have sufficient cash at sight to cover expected operating expenses, including the compliance with financial obligations; this excludes the potential impact of extreme situations that cannot be reasonably foreseen, such as natural disasters.
28.3. Market risk
Interest rate and inflation risk: Interest rate risk derives from debt portion indexed to TJLP, TLP, IPCA, IGPM, CDI and LIBOR and from financial assets in CDI that may adversely affect financial revenues or expenses in case an unfavorable movement occurs in interest and inflation rates. This risk exposure as shown in the sensitivity analysis provided below.
28.4. Operating risk
Operating risk is the risk of direct or indirect losses arising from different causes related to the processes, personnel, technology and infrastructure of the Company and its subsidiaries, and external factors, except credit, market and liquidity risks, as those arising from legal and regulatory requirements and from generally accepted corporate behavior standards. The objective of the Company and its subsidiaries is to manage the operating risk and the service quality risk in order to avoid sustaining financial losses and harming the reputation of the Company and its subsidiaries.
28.5. Capital management
The policy of the Executive Board is to maintain a solid capital base to maintain the confidence of investors, creditors and market and the future development of the business. The Executive Board monitors returns on capital, which the Company defines as income (loss) from operating activities divided by total shareholders' equity. Executive Board also monitors the level of dividends to its shareholders.
28.6. Financial instruments’ analysis
There is a comparison below, by class of book and fair value of financial instruments of the Company and its subsidiaries.
Parent company | Consolidated | ||||||||
| Book value | Fair value | Book value | Fair value | Book value | Fair value | Book value | Fair value | |
| 03/31/2020 | 03/31/2020 | 12/31/2019 | 12/31/2019 | 03/31/2020 | 03/31/2020 | 12/31/2019 | 12/31/2019 | |
| |||||||||
Financial assets | |||||||||
Cash and cash equivalents (note 5) | 521 | 521 | 16,387 | 16,387 | 66,344 | 66,344 | 75,898 | 75,898 | |
Financial assets (Note 6) | 559,512 | 559,512 | 732,473 | 732,473 | 675,768 | 675,768 | 904,362 | 904,362 | |
Trade accounts receivable (Note 7) | - | - | - | - | 270,169 | 270,169 | 288,111 | 288,111 | |
Other assets (Note 10) | 72 | 72 | 93 | 93 | 43,431 | 43,431 | 48,847 | 48,847 | |
Total | 560,105 | 560,105 | 748,953 | 748,953 |
| 1,055,712 | 1,055,712 | 1,317,218 | 1,317,218 |
|
|
|
|
|
|
|
|
| |
Financial liabilities |
|
|
|
|
|
|
|
| |
Suppliers | 390 | 390 | 1,050 | 1,050 | 20,654 | 20,654 | 24,007 | 24,007 | |
Loans and financing (Note 15) | - | - | - | - | 199,836 | 199,836 | 210,182 | 210,182 | |
Lease payable (Note 16) | - | - | - | - |
| 109,979 | 109,979 | 126,082 | 126,082 |
Accounts payable for the acquisition of subsidiaries (Note 18) | - | - | - | - | 122,047 | 122,047 | 83,069 | 83,069 | |
Other liabilities (Note 21) | 1,070 | 1,070 | 1,070 | 1,070 |
| 85,118 | 85,118 | 94,445 | 94,445 |
Total | 1,460 | 1,460 | 2,120 | 2,120 |
| 537,634 | 537,634 | 537,785 | 537,785 |
46
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
Amounts of these instruments recognized in the balance sheet do not significantly differ from their fair values.
· Trade accounts receivable and suppliers approximate their respective book value mostly due to the short-term maturity of these instruments.
· Loans and financing, leases and accounts payable due to acquisitions are contractually restated and represent the balance to be paid on the date of settlement of the contractual obligations.
Financial instruments per category:
Parent company | ||||
| 03/31/2020 | 12/31/2019 | ||
| Fair value through profit or loss | Amortized cost | Fair value through profit or loss | Amortized cost |
Financial assets | ||||
Cash and cash equivalents (note 5) | 15 | 506 | 16 | 16,371 |
Financial assets (Note 6) | 559,512 | - | 732,473 | - |
Other assets (Note 10) | - | 72 | - | 93 |
| 559,527 | 578 | 732,489 | 16,464 |
Financial liabilities |
|
| ||
Suppliers | - | 390 | - | 1,050 |
Other liabilities (Note 21) | - | 1,070 | - | 1,070 |
| - | 1,460 | - | 2,120 |
Consolidated | ||||
| 03/31/2020 | 12/31/2019 | ||
| Fair value through profit or loss | Amortized cost | Fair value through profit or loss | Amortized cost |
Financial assets | ||||
Cash and cash equivalents (note 5) | 12,548 | 53,796 | 7,924 | 67,974 |
Financial assets (Note 6) | 675,768 | - | 904,362 | - |
Trade accounts receivable (Note 7) | - | 270,169 | - | 288,111 |
Other assets (Note 10) | - | 43,431 | - | 48,847 |
| 688,316 | 367,396 | 912,286 | 404,932 |
Financial liabilities |
|
| ||
Suppliers | - | 20,664 | - | 24,007 |
Loans and financing (Note 15) | - | 199,836 | - | 210,182 |
Lease payable (Note 16) | - | 109,979 | - | 126,082 |
Accounts payable for the acquisition of subsidiaries (Note 18) | 122,047 | - | 83,069 | - |
Other liabilities (Note 21) | - | 85,118 | - | 94,445 |
| 122,047 | 415,587 | 83,069 | 454,716 |
47
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
28.7. Fair value hierarchy
The table below shows the hierarchy of fair value measurement of assets and liabilities of the Company and its subsidiaries.
Quantitative disclosures of fair value hierarchy as of March 31, 2020:
Total | Prices quoted in active markets (Level 1) | Significant observable data (Level 2) | Significant non-observable data (Level 3) | |
Assets measured at fair value | ||||
Financial assets at fair value | ||||
Financial assets (Note 6) | 675,768 | - | 675,768 | - |
|
|
|
| |
Liabilities measured at fair value |
|
|
|
|
Financial liabilities at fair value |
|
|
|
|
Loans and financing (Note 15) | 199,836 | - | 199,836 | - |
Lease payable (Note 16) | 109,979 | - | 109,979 | - |
Accounts payable for the acquisition of subsidiaries (Note 18) | 122,047 | - | 1.159 | 120.888 |
Items measured at fair value on a recurring basis – The Company’s liabilities related to business combinations are measured at fair value with Level 3 inputs. The Company determines the earn-out fair value and any subsequent changes in fair value using a discount approach based on the weighted probability. The fair value of earn-out is assessed considering payments that the Company expects to make based on historical internal observations.
The Company and its subsidiaries use proper valuation techniques with the help of sufficient data to measure the fair value, maximizing the use of relevant observable data and minimizing the use of unobservable data.
48
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
There were no transfers between measurement levels in the fair value hierarchy for the year ended March 31, 2020 for these assets.
28.8. Sensitivity analysis for financial assets and liabilities
Main risks related to the transactions of the Company and its subsidiaries are linked to TJLP, TLP, CDI, IPCA, IGPM, IPC, SELIC and LIBOR change for BNDES financing and accounts payable due to acquisition of companies, and to CDI for financial assets.
The investments with CDI are recorded at market value, according to quotations announced by the respective financial institutions and the others mainly refer to bank deposit certificates. Therefore, the recorded value of these securities does not differ from the market value.
In order to check the sensitivity of the indexer of financial investments to which the Company and its subsidiaries were exposed to at March 31, 2020, we defined three scenarios for the risk of decrease in CDI. The March 2020 index, which was 3.65% (4.40% as of December 31, 2019), was defined as probable scenario; based thereon, 25% and 50% scenarios were defined.
Parent company |
| |||||
Operation | Balance at 03/31/2020 | Risk | Scenario I (probable) | Scenario II | Scenario III | |
| ||||||
Financial assets | 559,512 | CDI decr. | 3.65% | 2.74% | 1.83% | |
Financial revenue |
| 20,422 | 15,331 | 10,239 | ||
Consolidated |
| |||||
Operation | Balance at 03/31/2020 | Risk | Scenario I (probable) | Scenario II | Scenario III | |
| ||||||
Financial assets | 675,768 | CDI decr. | 3.65% | 2.74% | 1.83% | |
Financial revenue | 24,666 | 18,516 | 12,367 | |||
In order to analyze sensitivity of debt indexes, to which the Company and its subsidiaries were exposed at March 31, 2020, three different scenarios were defined for the risk of increase in such indexes. This was based on TJLP, TLP, IPCA, IPC, IGPM, CDI, SELIC and LIBOR amounts in effect at March 31, 2020, available at CETIP, IBGE, Central Bank of Brazil, FGV, among others. Accordingly, a probable scenario was defined for 2020, based on which, 25% and 50% differences were calculated.
49
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
For each scenario the Company calculated the gross financial expense, not taking into account the taxes levied and the flow of maturities for each contract scheduled for 2020. The base date used for financing was March 31, 2020, projecting indices for one year and verifying their sensitivity in each scenario.
Consolidated | |||||
Operation | Balance at 03/31/2020 | Risk | Scenario I (probable) | Scenario II | Scenario III |
| |||||
Financings – BNDES | 199,836 | TJLP incr. | 10,172 | 12,710 | 15,267 |
Rate subject to change |
| 5.09% | 6.36% | 7.64% | |
|
|
|
|
| |
Acquisition of companies | 8,392 | IGPM incr. | 142 | 177 | 213 |
Rate subject to change |
| 1.69% | 2.11% | 2.54% | |
|
|
|
|
| |
Acquisition of companies | 316 | CDI incr. | 12 | 14 | 17 |
Rate subject to change |
| 3.65% | 4.56% | 5.48% | |
|
|
|
|
| |
Acquisition of companies | 19,471 | IPCA incr. | 103 | 129 | 156 |
Rate subject to change |
| 0.53% | 0.66% | 0.80% | |
|
|
|
|
| |
Acquisition of companies | 12,999 | R$ decr. | 676 | 845 | 1,014 |
Rate subject to change | 5.20% | 6.50% | 7.80% |
29. Earnings per share
Basic earnings per share is calculated by dividing profit attributable to company shareholders by the weighted average number of common shares available during the fiscal year.
Diluted profit per share is calculated by adjusting the weighted average number of common shares, presuming the conversion of all the potential diluted common shares. The Company has a Stock Option Plan that provides for the granting of 4,060,627 stock options with the Plan’s total dilutive potential being represented by 902,560 stock options, including initial granting.
The tables below show data of income and shares used in calculating basic and diluted earnings per share:
| Parent company and Consolidated | |
| 03/31/2020 | 03/31/2019 |
|
|
|
Net income (loss) for the year | (9,054) | 17,180 |
|
|
|
Weighted average of shares | 191,513,504 | 166,292,192 |
(-) Treasury shares | (10,392,787) | (7,502,115) |
Adjusted weighted average of shares | 181,120,717 | 158,790,077 |
|
|
|
Basic earnings (loss) per share - (in Reais) | (0.0500) | 0.1082 |
|
|
|
|
|
|
| Parent company and Consolidated | |
| 03/31/2020 | 03/31/2019 |
| ||
Net income (loss) for the year | (9,054) | 17,180 |
|
|
|
Weighted average number of shares (*) | 191,513,504 | 166,292,192 |
(+) Stock Option | 4,361,045 | 2,735,687 |
(-) Treasury shares | (10,392,787) | (7,502,115) |
Adjusted weighted average of shares | 185,481,762 | 161,525,764 |
|
|
|
Diluted earnings (loss) per share (in Reais) | (0.0488) | 0.1064 |
(*) Post-stock-split amounts at June 13, 2016.
50
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
30. Share-based payment
30.1. Stock option
In the Special Shareholders’ Meeting held on December 4, 2012, the Stock Option Plan of Linx S.A. was approved. Such plan establishes the general conditions for grant of shares issued by the Company, under the terms of article 168, paragraph 3, Law 6404/76.
The fair value of each option granted is estimated at the grant date, based on the Black-Scholes stock pricing model, which considered the following variables and results:
Stock option |
| ||||||||
Grant | Fair value assumptions |
| |||||||
Expected |
| ||||||||
Number | Date | Quantity of options | Strike price - Reais | Option pricing | Dividends - % | Volatility - % | Risk-free interest rate, % | Maturity term | Maturity date |
|
| ||||||||
1st | 2013 | 1,842,951 | 18.72 | 4.24 | 3.30% | 25.24% | 10.27% | 4 years | 2017 |
2nd | 2014 | 406,059 | 33.83 | 3.94 | 0.80% | 25.11% | 10.12% | 4 years | 2018 |
3rd | 2015 | 432,855 | 38.72 | 11.86 | 1.28% | 24.00% | 12.96% | 4 years | 2019 |
4th | 2016 | 566,592 | 38.17 | 14.00 | 0.85% | 25.01% | 7.25% | 4 years | 2020 |
5th | 2017 | 391,618 | 16.99 | 3.83 | 1.34% | 24.25% | 9.71% | 4 years | 2021 |
6th | 2018 | 420,552 | 21.61 | 2.99 | 1.39% | 23.69% | 7.43% | 4 years | 2022 |
Changes in stock option plan are as follows:
Stock option plan | ||
Number of outstanding shares | Strike price (in Reais) | |
December 31, 2019 | 716,173 | 19.16 |
(-) Exercised | (24,207) |
|
March 31, 2020 | 691,966 | 5.27 |
51
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
30.2. Restricted shares
The fair value of each restricted share is estimated on the concession date with basis on the Black-Scholes option pricing model and considering the following variables and results:
Deferred shares |
| ||||||||
Grant | Fair value assumptions |
| |||||||
Expected |
| ||||||||
Number | Date | Number of shares | Strike price - Reais | Pricing | Dividends - % | Volatility - % | Risk-free interest rate, % | Maturity term | Maturity date of |
shares | |||||||||
|
| ||||||||
1st | 2016 | 10,446 | 19.45 | 16.00 | 0.80% | 25.01% | 13.64% | 1 years | 2017 |
2nd | 2017 | 884,602 | 29.43 | 27.84 | 1.34% | 24.25% | 9.71% | 4 years | 2021 |
3rd | 2018 | 448,489 | 19.16 | 18.12 | 1.39% | 23.69% | 7.43% | 4 years | 2022 |
4th | 2019 | 3,232,761 | 29.27 | 27.75 | 1.33% | 27.14% | 6.42% | 4 years | 2023 |
The financial activity of the restricted shares is presented below:
Restricted shares | ||
Number of outstanding shares | Strike price (in Reais) | |
|
|
|
December 31, 2019 | 3,699,594 | 34.33 |
Granted | - | - |
(-) Exercised | (7,433) | - |
(-) Canceled | (126,538) | - |
March 31, 2020 | 3,565,623 | 25.41 |
The accumulated effect in the period ended March 31, 2020 is R$ 1,780 (R$ 2,912 as of March 31, 2019) recorded in the statement of income as payroll expenses. This effect did not impact the Company’s cash.
The accumulated balance in shareholders’ equity presented in the capital reserve under “stock option plan” in the period ended March 31, 2020 is R$ 41,518 (R$ 39,737 as of December 31, 2019).
31. Liabilities from financing activities
12/31/2018 | 01/01/2020 | Receipts | FX | New acquisitions | Other (*) | 12/31/2019 | |
Loans and financing (Note 15) | 249,981 | - | (59,070) | - | 443 | 18,828 | 210,182 |
Lease payable (Note 16) | - | 91,796 | (18,845) | 249 | - | 52,882 | 126,082 |
Accounts payable for the acquisition of subsidiaries (Note 18) | 112,487 | - | (48,093) | 1,483 | 54,723 | (37,531) | 83,069 |
Total liabilities from financing activities | 362,468 | 91,796 | (126,008) | 1,732 | 55,116 | 34,179 | 419,333 |
12/31/2019 | Payments | FX | New acquisitions | Other (*) | 03/31/2020 | |
Loans and financing (Note 15) | 210,182 | (16,759) | - | - | 6,413 | 199,836 |
Lease payable (Note 16) | 126,082 | (31,520) | 3,811 | - | 11,606 | 109,979 |
Accounts payable for the acquisition of subsidiaries (Note 18) | 83,069 | (18,672) | 3,401 | 52,661 | 1,588 | 122,047 |
Total liabilities from financing activities | 419,333 | (66,951) | 7,212 | 52,661 | 19,607 | 431,862 |
(*) Changes included in column “other” include effects from the effects from additions of IFRS 16/CPC 06 (R2), effect from recognition of interest not yet paid on loans and accounts payable due to acquisition and acquisitions’ adjustment to present value.
52
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
32. Assets and liabilities of operating segments
Operating segments are defined based on business operations by reflecting the way the Company’s management reviews financial information for decision-making. Thus, the Company has two reportable segments: Linx Software and Linx Pay Meios de Pagamento Ltda. and its subsidiaries. The accounting policies of the operating segments are the same as those applied to the consolidated financial statements.
The information below shows the summarized equity position of reportable operating segments for the periods ended March 31, 2020 and December 31, 2019:
03/31/2020 | ||||
| Software | Linx Pay Meios de Pagamento Ltda. and its subsidiaries | Eliminations | Total consolidated |
Assets | ||||
Current assets | 927,679 | 118,670 | (4,115) | 1,042,234 |
Non-current assets | 1,453,892 | 211,505 | (202,597) | 1,462,800 |
Total assets | 2,381,571 | 330,175 | (206,712) | 2,505,034 |
Liabilities | ||||
Current liabilities | 266,291 | 121,959 | (4,115) | 383,235 |
Non-current liabilities | 370,219 | 14,125 | (7,606) | 376,738 |
Shareholders' equity | 1,745,061 | 194,991 | (194,991) | 1,745,061 |
Total liabilities and shareholders' equity | 2,381,571 | 330,175 | (206,712) | 2,505,034 |
12/31/2019 | ||||
| Software | Linx Pay Meios de Pagamento Ltda. | Eliminations | Total consolidated |
Assets | ||||
Current assets | 1,193,336 | 112,679 | (6,045) | 1,299,970 |
Non-current assets | 1,292,217 | 30,930 | (59,174) | 1,263,973 |
Total assets | 2,485,553 | 143,609 | (65,219) | 2,563,943 |
|
|
| ||
Liabilities |
|
|
| |
Current liabilities | 284,775 | 91,117 | (6,045) | 369,847 |
Non-current liabilities | 410,934 | 2,837 | (9,519) | 404,252 |
Shareholders' equity | 1,789,844 | 49,655 | (49,655) | 1,789,844 |
Total liabilities and shareholders' equity | 2,485,553 | 143,609 | (65,219) | 2,563,943 |
53
Linx S.A.
Notes to the interim financial information
March 31, 2020
(In thousands of Reais, unless otherwise indicated)
33. Insurance coverage
The Company and its subsidiaries adopt the policy of contracting insurance coverage for properties subject to risks in amounts considered sufficient to cover any casualties, considering the nature of their activity. Coverages in 2020 and 2019 are shown below:
Parent company and Consolidated | ||
03/31/2020 | 12/31/2019 | |
Civil liability for professionals | 10,000 | 10,000 |
Civil liability for managers | 70,000 | 70,000 |
Operational risks | 200,000 | 165,800 |
Vehicles | 600 | 600 |
280,600 | 246,400 |
34. Subsequent events
34.1. Merger of Sback
On April 1, 2020, Linx Sistemas e Consultoria Ltda., a wholly-owned subsidiary of the Company incorporated the subsidiary Sback Tecnologia da Informação Ltda., which operates a cloud platform focused on retention, reengagement and recovery technologies through Big Data and intelligence for engagement.
34.2. Merger of Seta
On June 1, 2020, Linx Sistemas e Consultoria Ltda., a wholly-owned subsidiary of the Company, incorporated the subsidiary SetaDigital Sistemas Gerencial Ltda., which operates in ERP solutions and services for wholesale retail.
Alberto Menache Chief Executive Officer | Antonio Ramatis Fernandes Rodrigues Financial Vice-President |
Úrsula Copi Peres Accountant |
54
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 8, 2020
Linx S.A.
By: /s/ Ramatis Rodrigues
Name: Ramatis Rodrigues
Title: Investor Relations Officer