Meliuz SA

BOVESPA:CASH3

Earnings Call Transcript 2023-Q2

[Marcio Penna, executive]

Good morning, everyone. It's a pleasure to be with you once again for another quarter to present the results of the second quarter of 2023. My name is Marcio Penna. I am the IRO of Méliuz. This conference call will be held in Portuguese and simultaneously translated into English. All you need to do is to select the interpretation in your language. So select the preferred language by clicking on the interpretation button, which is located at the bottom of the screen.

So here with us, we have Israel Salmen; Gabriel Loures, who is our Growth Officer; and Andre Amaral, Strategy Officer. So this conference call is being recorded. [Operator Instructions]

All our materials have been filed at CVM and are available at Investor Relations website. Israel, the floor is yours.

[Israel Salmen, executive]

Good morning, Marcio. Good morning to everyone, all analysts and investors. It's a pleasure to be with you. In November 2020 and today, I started thinking and I was thinking how many times we were together. And these have been quarters of great learning. The company has transformed many M&As. We have improved our shopping. And this is a different time, a time when we will be focusing on the company's operational efficiency and the cycle that I talk a lot very often.

We always have major growth cycle in our nearly 12 years of life and some efficiency, which is happening in the first half of this year. The team is very, very focused on this mission. So as you can see, that what we are going to say today is an update of everything that happened. But we are still saying the saying that to increase efficiency, to reduce costs and expenses, to negotiate with suppliers, to improve our products, so that we can do much more with less resources, for example, in marketing. So the company is on the right track.

I talked a lot about having control of everything, and this is increasingly more half of this year. We are going to start collecting the fruit of everything that we did in the first half of the year, and there are a few highlights. Number one, we signed the SPA with Bankly. So Bankly is on the next phase of approval for the BACEN and CADE, the CADE, in the last night, just after we published our results.

And this is another phase for the BACEN, the Central Bank of Brazil, for us to continue focusing more and more on building an asset-light business model, focusing on Méliuz and other companies of the group.

Number two. Another accomplishment in the first half of the year, we started obtaining value from our commercial agreement with BV. So we are doing it with BV. And then we will talk about this more towards the end of the year. And this has been something very important that we did in the beginning of this year to stop doing financial services in home. And with the help of BV and they have great know-how on that, to have the penetration of financial services in our current customer base. Another thing that we did very well was to reduce expenses and costs. It's been falling quarter-on-quarter. So we are starting to have a cost structure which is much smaller, much leaner that will enable the company to keep growing. And in the second half of the year, where we'll have the chance to make the most of the commercial agreement that we have signed with BV. And we are going to start the second half of the year, as everyone knows, that it's stronger for e-commerce, just -- not just in Brazil.

And we are going to start a leaner cost structure, and then we will break even, which is our mission. We will talk about that on Méliuz Day. And in addition to breakeven on Méliuz Day, we are going to provide a clearer vision of what to expect from new Méliuz in 2024.

Without further ado, our presentation today is going to be led by Marcio, Gabriel and Andre. I'll give the floor to them, and then I'll come back for the Q&A.

[Gabriel Araujo, executive]

So thank you so much, Israel. It's a pleasure to be here. My name is Gabriel. I'm going to talk a little bit about shopping, both in Brazil and international. And then Andrew will talk about BV and financial services. And then Marcio will be talking about the financial aspects and the company's EBITDA.

So talking about shopping in Brazil. So we are still focused on optimizing our margins. We have a consistent work in improving our efficiency indicators of our core business. And once again, we have a quarter with an increase. We got to 2.3% in Q3 2023 versus 2.1% in Q2 last year. And the consequence of this efficiency work in all verticals is related to the margin of Brazil shopping, which went from 3 -- to BRL 19.9 million, growing 53% in the year. And so our focus is on improving the profitability. And this is very clear.

And this result is only possible for 3 reasons. And I would like to talk a little bit about those reasons. I think that number one is the value that we create for our partners in our core business. So in our relationship with partners that I manage together with the commercial team, it's very clear to all of them in all our conversations, the importance of Méliuz to generate qualified sales at low cost and sales that really change the performance.

Méliuz platform is highly competitive in a scenario that is increasingly more crowded. Many companies go into the digital channel. That increases the prices of traditional media. And with this context, Méliuz is a very efficient platform with good quality, low-cost sales. And this is very clear in all the conversations that I have with our partners.

I think that the second main reason that has improved the profitability of our shopping business is to the renewal of our core business. Number one, they are small innovations, better adjustments that we make every day. So we have great conversion, the best experience possible for our users and the best sales for our partners.

And the second part are new modes of businesses, new ways of creating revenue. So I think that we are growing significantly. This is a business vertical that generates exposure to brand sales. Once we show our users an increased exposure to ours -- of each one of our partners, this is very good. We have selected offers. So they're offers that are selected by the community, making sure that they are relevant of whatever we offer to our users. They choose the products that they are going to buy.

We have campaign calendar. So we create Méliuz dates that help balance the seasonal drop in shopping in the first half of the year and generates a quite relevant revenue increase for our partners in these exclusive Méliuz dates in addition to other exclusive campaigns.

And number three is what supports all others. We have been talking about our margin and cashback optimizations and everything that we'd do with the cashback percentage. We've been talking about the reduction in marketing investments. And what we see on the other end, our users that keep buying with optimal experience to buy and generate value with cashback, and with the pleasure of gaining more and more gifts, which makes it possible for us to do all the work of margin optimization. And this is an evidence of the value that we create for our users.

Talking about our international shopping business, and this is a slide that is really nice. We see a movie with our team, talking to everyone who was here already in 2014, 2016, this is a Méliuz very similar to what was back then. This is what we saw at Picodi. So when we see new buyers, the total number of buyers and the growth, that grew almost threefold from Q2 '22 to Q2 '23, which is almost equivalent to the net revenue of our cashback operation.

When we look at the financials, these numbers are not yet reflected in our bottom line. So we buy a cashback revenue that has much more quality because this is revenue that users buy again and again, and it is a recurring revenue for Picodi. And as we add the new users, and then Picodi cashback revenues growths at a very high speed. This is very important for our business, and we see a lot of value related to that.

We monitor 2 basic metrics, number of buyers and acquisition of new buyers. That has grown a lot from the second quarter of '22 to the second quarter of '23. We reached the landmark of 2.4 million, much faster than we did with Méliuz in the past. And the second metric is GMV, which is very much in line. We can make projections that as we include new waves of buyers on top of what we already have, there will be exponential growth of cash back. So our expectation for Picodi business is that it will grow more and more significant for the long term, and it generates significant geographical variety or expansion that we have access, not just to Brazil but also to other countries.

So this is it about the shopping business, and I'm going to give it over to my colleague, Andre.

[Andre Ribeiro, executive]

Thank you, Gabriel. Good morning, everyone. A pleasure to be with you again. So I'm going to go over this page. As Israel mentioned, this is the current status of the partnership that we announced at the end of last year. Our partnership with Banco BV, we have overcome a few landmarks. And I think that during the second quarter, we finished signing the SPA when we submitted it. And we approved the commercial agreement, and we submitted it to regulation agencies in Brazil.

And just last night, we heard the approval from the Brazilian antitrust authority, CADE. And now we are submitting it to the approval by the Central Bank of Brazil, which will take place in the next 6 or 12 months, as estimated by the regulator. We also have the commercial agreement between Méliuz and BV that we had last year.

And going to the next page, and this is what we had in the first quarter. Talking -- we talked a little bit about this in our last conference call. But we have attained some very important landmarks. So we started the first developments in the beginning of the year, so as soon as we signed the commercial agreement with BV Bank. And just to make it clearer for everyone, everything related to the infrastructure of Méliuz financial services still exists in the banking services. But everything related to regulation affairs, we did the migration of the Acesso Bank to BV, the digital account, the credit card and other financial services that we are going to build from now on, based on what we agreed with the commercial agreement.

So we spent the first 6 months doing this migration. And I think we exceeded our best expectations. We already had very good expectations in terms of what would be in the first phase of the project. And fortunately, we could work together in this process of the integration of the technologies of the 3 companies. And even faster than we had imagined, we could make the new Méliuz-BV-Bankly structure operational. So we did this along the second quarter as we evolved in integrations. Many of the accounts -- for most of the existing accounts, we started opening new accounts. And once we finalize 100% of the integrations, which happened on July 4, 100% of Méliuz accounts were then opened at the financial organization of BV Bank.

During the first half of the year, as we were doing the migration of technologies, we kind of slowed down the opening of accounts. We didn't invest in marketing because our focus was on the migration of technologies. And now we are going back to this growth as 100% of the accounts are being opened for BV.

So thinking of July numbers, we already have about 60 at BV Bank, and these accounts are still made with 100% organic efforts of our team in our conversion efforts. So we talked a little bit about this in our release, and this shows our efficiency in the acquisition activation of users in our internal communication channels.

So we reduced our market investments. And then -- this is less than BRL 1 million per month. Even though we reduced, we could still grow in terms of accounts opened. And in the second half of the year, there will be a phase of migration of the accounts that were opened until last year in Acesso, Méliuz and BV that will no longer be with Acesso and will be migrated to BV, so there's a migration phase that will take place during the second half.

And the escalation of the building of our credit card portfolio, we have already started doing this. But in the second half of the year, we hope that it will be at cruise speed, and we are going to have BV team to escalate this operation. And so we've been super successful with users, with the team. We are very excited in terms of what we'll deliver from now on.

And number three, one of the main important points is the agenda of new products. You are going to see or hear more about that on Méliuz Day. We have ongoing conversations about other products that are accessories to the digital account so that we can monetize more the account for the customers who have BV accounts.

Now I'm going to turn it over to Marcio to talk more about the numbers of the second quarter.

[Marcio Penna, executive]

Thank you, Andre. Now -- so this slide, which is a pillar not just of this result but for the year as a whole, we hear all the time talking about the market and so we are collecting the results. We've seen the results of what we've been doing since the beginning of the year.

So between the first and second quarter, we have reduced expenses across the board in all lines, in all expense lines. We went from a level of BRL 112.4 million operational expense in Q4, reducing 18% in the first quarter and getting into Q2, where to the level of BRL 86.1 million in total expenses in the quarter. This is a significant reduction, 23%. This is not just due to the management. We are not the only ones to get credit for them. All employees get the credit. We have in-sourced some services. We talk to our partners. So everyone should get the credit for that because everyone really gave a contribution for us to get to this leaner cost structure. So we see an upside for the second half of the year.

So this number, BRL 86 million, is the basis for the second half of the year. And as you know, there is a percentage. There is a variable cost related to e-commerce revenue because of the cashback expense. But the fixed cost as a whole, that is from this level down. When we see the numbers of the parent company, numbers are also significant. So we went from BRL 92.4 million, and we got to the second half of this year with 61.5% -- with 33% reduction in the first 6 months of the year. So the company is really doing its best for us to have a better cost structure. And by the end of the year, it should be a lot different and much leaner than we had in the beginning.

And now considering revenue, as we said in the beginning of our webinar, so we will be talking about revenue again because these cards and accounts that are being issued, as Andre has said, they will be compensated by BV. So each account and card activated, we will get a compensation. And the second half of the year seasonally is usually better. So there will be improvements in the second half as compared to the first half of the year.

Now going to the next slide. You can see the bottom line, the company's EBITDA, as we said in the previous slide. So here, you can see that the company's efforts are being translated into numbers. If we look at consolidated numbers, we go from EBITDA of BRL 45.9 million in the second quarter last year to BRL 14 million negative this quarter. We haven't yet been able to get our objective of breaking even, but we are very close to that. We had a robust reduction. The reduction was not so robust as compared to the first quarter. As everyone knows, Q1 is usually weaker for e-commerce and retail as a whole. But the expectation is that on the second half of the year, we'll break even. And then from next year on, we will be generating cash.

Now thinking of the parent company, numbers are even better. We went from a level of BRL 46.4 million negative in Q2 '22, going to a minus BRL 8.7 million in Q2 '23, an 81% improvement in 1 year. When we take out one-off events, we go in the same direction. We had a gain of efficiency in 77% in the adjusted EBITDA for the parent company and a 57% improvement of the adjusted EBITDA for the consolidated numbers. So we assure, we will break even in the second half of this year.

So showing it very clearly that this is the cash breakdown as compared to the last quarter. So the first bar is the cash that we closed Q1, with a disclaimer that it's slightly different from the picture you saw in our Q1 release -- earnings release because you are excluding Bankly. Because we signed the SPA with Bankly, it is an asset available for sale. So according to accounting standards in IFRS 5, we take it out. And it's only shown after the net income in the balance in our earnings release.

So we had cash, excluding Bankly, would be BRL 422 million in Q1. We get to BRL 393 million in the second quarter. It's important to show that only BRL 8 million is related to cash reduction due to the company's operation. All other cash reductions are one-off events. BRL 7 million are one-off events related to billing amounts that we didn't receive in the first quarter and we got in the second quarter. This has been reversed. And we have other one-off events due to the signature of SPA because we had to pay our legal and financial advisers. So these one-off effects will no longer have an impact in the company's numbers in Q3. So the reduction would be about BRL 8 million in operation, and it's likely to go to 0 very shortly. This will turn in positive cash generation for the company.

And going to the next slide, our very famous Méliuz Day. We started working on Méliuz Day. We really want to have an event, not just about our core business, e-commerce, but also about our strategic partnerships with BV. We have a lot to talk about, Picodi. The numbers are very good, and we will be able to show you a little bit of the message on Méliuz Day. So we haven't yet confirmed the date for our Méliuz Day because we still need to confirm the venue and time. It will probably be in the second half of September, and we will talk about strategy and numbers.

Considering that the revenue and expense breakdown of Méliuz has been changing so much during the year, we think it's fair to the market for us to give you a basis in terms of expectation for this year and next year. So in terms of revenue, GMV, expenses, EBITDA, ramp-up of cards, accounts, Picodi, so we will be talking about everything, and we assure that the market is going to like it very much.

And with this, I end the presentation of our webcast, and we will open our Q&A session.

[Marcio Penna, executive]

[Operator Instructions] Our first question comes from Ricardo Buchpiguel from BTG.

[Ricardo Buchpiguel, analyst]

Israel, Gabriel, Andre and Marcio, thank you for the presentation. I have 2 questions to ask. Méliuz had a loss of BRL 20 million, excluding banking and one-off events. Thinking of the target breakeven, so this is the implicit -- a positive bottom line per quarter of BRL 10 million plus the BRL 12 million down in Q2. Does it make sense to expect that from now on? And do you think we are going to see a positive EBITDA in Q3? And my second question, you talked about new products that may improve customer experience and improve growth in addition to the products that you have already mentioned related to financial products, should we expect any other new products?

[Unknown Executive]

Well, I'm going to first answer your second question. Certainly, the main thing about the second half of the year, in addition to the shopping business results because of the seasonality and recovery of the market, are likely to get better. So there are also financial services. The main thing are accounts and cards, and we have started developing new products that will be reflected in Q4. So in addition to accounts and cards, the new services will be seen in Q4, and we've already seen this for accounts and cards. We are issuing many more cards and opening accounts. We have already started this in Q3. And talking about the new products and services, we'll talk more about this on Méliuz Day, insurance and investment products too and other account accessory products. So this makes sense as of Q4 ramping up next year. So the first question, Marcio?

[Marcio Penna, executive]

Ricardo, thank you very much for your question. The goal is really challenging. You're right. That's it. We are working our internal goal is at the parent company, we want to have operational breakeven. Of course, excluding one-off, we want to have operational breakeven. And yes, we are after that. So the trend here is to report results better in the second half of the year. Then in the first half of the year, as a whole, basically with increases in revenue, and as you said, considering our strategic partnership with JV, we started opening accounts and issuing cards. There's a seasonality of e-commerce that will certainly help us. And we're still working to reduce costs and expenses. Our goal, internal goal, which is bold and challenging, remains that we will operationally break even at the parent company.

[Ricardo Buchpiguel, analyst]

If you can allow me to ask a question, which are possible uses that you have today once the Central Bank approve? If we take the almost BRL 400 million cash and you get to Bankly, and as you said, the company is very close to breaking even, would it make sense to pay out to shareholders? Or would you use it for anything else for the cash that you already have?

[Unknown Executive]

Ricardo, thank you for the question. We are in a very convenient cash status if we know to work with calm, knowing how to make decisions. And at the same time, I've been talking to many investors. For us to get to this very comfortable cash position, it was hard work. We had to get capital. We haven't started just yesterday. It's been more than 12 years that we've been working very hard. The IPO and follow-on were very important to have the good position that we have today. So this does not reduce the importance of having robust cash. This is very important to make it very clear.

However, there are internal conversation, and we've been talking to internal conversations. There maybe a capital reduction anchored to amounts close to the sale of Bankly. We've been talking about that in the Board of Directors. On Méliuz Day, I want to have something more concrete closer to a decision on this topic. So in September in Méliuz Day, we will talk about that.

And we are considering that. And the reason why we are not talking about this with the Board right now, about an even bigger capital reduction than that, there are many other options that we are analyzing in terms of M&A, the growth of any other business line that is doing well, giving hints for us to continue to invest and generate cash. And so I think this is my priority. And I hope that I will be able to give you a clearer information on Méliuz Day.

[Marcio Penna, executive]

Our next question comes from Mirela Oliveira from the Bank of America.

[Mirela Rodrigues de Oliveira, analyst]

I have 2 questions about Bankly, if you allow me. So how was the standalone cash burn in Q3 and what we should expect in future quarters? And the second quarter is related to one-off costs related to the Bankly transaction. Are we going to see any impact on the future quarters?

[Marcio Penna, executive]

So I'll start answering your question. Thank you very much for your question. Mirela. So Bankly, as you are well aware, so it is an asset that burns more cash operationally speaking. And the same work that we did it, we are doing at Méliuz along the first half of the year. It started being done at Bankly in the middle of the second quarter. So according to our expectations, trying to avoid guidances, I'm going to save guidances for Méliuz Day. Along the second half, there will be a reduction in Bankly cash burn and a reduction that will be consistent.

So in Q3, there will be some cash burn with a reduction. And if we look at the second half as a whole, the reduction is going to be very clear. I'm going to try and avoid numbers, and I'm going to save the numbers for Méliuz Day. Your second question regards one-off items that might affect our bottom line. And the main one dropped because we signed the SPA with Bankly. There are some amounts that might be due before the end of the year because we still have all the approvals of regulation agencies of the operation. So our advisers are still with us, and they will be with us until the operation is completely finalized. So the main amount, thinking of the next 3 months in this quarter, they're over. They're passed. I don't see any major disbursements in Q3 due to financial and legal advisers.

Our next question comes from Andrew from Morgan Stanley.

[Andrew Ruben, analyst]

Thanks for the question. We've heard a lot about the cross-border operators increasing in Brazil. I know you've done business with the likes of Shopee, Shein. I'm curious your view of how relevant this channel is, how the conversations are going, and the extent that further growth in these platforms can be a driver for your Brazil GMV over the coming quarters.

[Unknown Executive]

Thank you very much for answering the question. I'm going to answer in Portuguese. Yes, we've been monitoring very closely the growth of our cross-border players. For example, Shopee, AliExpress, our major partners, they are important to our business. And we are obviously working to bring other players in. We see this with good eyes favorably. And the competition in the Brazilian market is very important for a player like us that generate sales for our partners. So this leads to new marketing expenses and new sales. This is very positive for us. We've been talking, and we've been negotiating with all of them.

[Marcio Penna, executive]

So we have no other questions for today. I talked a lot to analysts last night and this morning before the webcast. So that said, we're going to move to our closing remarks.

[Unknown Executive]

So thank you all. Thank you, Marcio. Thank you all for your presence. We are still very much focused on our objectives. I think that we are on the right track. The company has been reducing its cost structure, has been working on new revenue lines. Some of them have been launched for Q2, the partnership with BV in accounts and cards. So everything else we said today about international shopping and other companies, all of this makes us very excited for the second quarter.

The beginning of the year was difficult. We had to implement major changes in our business after the announcement of the partnership with BV. So they were months of very, very hard work. But looking back in the last 6 months, its mission accomplished and our next mission now, as we've been saying, which is to make the company breakeven, to start 2024 in the well-known margins that we had before our IPO. Thank you all very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]