Meliuz SA

BOVESPA:CASH3

Earnings Call Transcript 2023-Q3

[Marcio Penna, executive]

Good morning, everyone. It's a pleasure to be with you once again to present our results for the third quarter of 2023. My name is Marcio Penna, and I'm Méliuz Investor Relations Director. Our conference call will be held the main goals of the year, which is the breakeven of the company. Our focus is to grow in a sustainable way, generating cash.

Our conference call will be held in Portuguese with -- and simultaneously translated into English. To do this you simply select the language you want in the interpretation button at the bottom of the screen.

Also present with us today is Israel, Founder and CEO of Méliuz Day; Gabriel Loures, Growth Director; and Andre Amaral, now Director of Strategy. Before handing the floor over to Israel, I would like to inform you that this event is being recorded. [Operator Instructions]. Israel, up to you.

[Israel Salmen, executive]

Thank you, Marcio. In the previous calls, we were reinforcing that we were reaping the fruits of all the efforts of our team related to optimizing costs and expenses. We came from a period of fast growth. We made several investments here in team products and several other fronts. And in the past quarters, we have been improving this relationship of expenses and costs in general of operating efficiency. We've been improving that in the past quarters. And now, in fact, it is clear to everyone, all the work that we have carried out throughout the year.

Gabriel is going to talk a bit more about our results. He's going to go into detail, so will Andre. And at the end, we are available to answer the questions you may have. Thank you.

[Gabriel Araujo, executive]

Good. Thank you, Israel. It's a pleasure. I'm Gabriel, and I'm very happy to be here every quarter. It's very good to talk to the market, especially now because of the result of a change. We've attained our greatest goal of the year, which was aligned in the market, the operating breakeven of the company. We had attained the financial breakeven. And this quarter we report the EBITDA of BRL 4.8 million, reverting operational loss of BRL 25 million last year. And when we put in adjusted EBITDA with the mainline being one-off of actually collective bargaining or actually a layoff of about we get BRL 23.1 million. In the consolidated view, we also take even when we see in the adjusted EBITDA, we get BRL 1.2 million vis-a-vis a loss of BRL 22.6 million in the Q3 '22, and an accounting view we get close to breakeven minus BRL 0.9 million. With the results we see here as CFO of the whole team. We've worked in all lines of the company from revenue to gross margin, operating expenses to attain this goal, and I'll talk a bit more about the main impact.

When we look at margin or shopping margin, we work with major levers. The first one is the commercial effort, a relationship with our partners, ensure that we can grow the number of campaigns, the most profitable fronts of the business, and we see the efforts of our partners with Méliuz showing our results and the concrete value we generate to them. The other great effort to increase Brazil Shopping is to be more efficient, more intelligent in the distribution of cashback without impacting user experience, ensuring our optimization the maximum point of sales and GMV and the growth operating margin, working in this elasticity margin of the business. And the third key point here is to ensure a good shopping experience. These are the constant improvements of our services and products that attains -- that leads us to attain 25% in the Brazil shopping margin in the yearly -- year-to-year comparison. And the other leverage is reducing operating expenses led by the financial team. So all the teams have negotiated 100% of their contracts. We ensured operating efficiency with supplies on marketing, we ensure that we were working with a period of payback within our strategy in optimizing investments, and we've also hedged to make a reduction of the personnel to adjust to the new -- that's a reduction of almost 40% of where we were in the fourth quarter last year and a reduction of 17% last year's third quarter. We reached a level of operating expenses result of all the efforts of the company, and we expect these results should be long-lasting and this new level of expenses should be maintained.

Here, we see the results of all the efforts with the 2 major fronts: the gross margin and expenses. Our net results, we attained BRL 9.5 million net results in the controller, so 7.6% in consolidated variations and reversion of losses of BRL 8.7 million and BRL 9.1 million, respectively, comparison -- comparing controllers and consolidated and/or the parent company.

So -- the next page, we see what's happened in the third quarter that we were able to beat once again, a cash-generating company. This is a result of Méliuz, the parent company. It's out of our financial results and in the effect of receivables we had this year as we had commented in the second quarter, we have a line of BRL 7.1 million of receivables, which is a specific type of in revenue, we came back to be a cash generation company. We grew over BRL 20 million comparison quarter-over-quarter. This mostly because of the operating results of the company. We won't stop here. This is just the beginning. We attained the first goal that we had proposed, and we are very excited for the next steps. Andre is going to go into details regarding our strategic focus from now on. But I would just like to talk about the Black Friday. It couldn't be different. We are in November, and we are very excited with the results we have been seeing so far. We're going -- we believe we can have a very good Black Friday. First is the engagement of our partners. Comparing year-over-year, we see an increase of 30% in the revenue of Méliuz ads and 15% more partners participated showing the willingness of those that were here to keep on investing with us, proving once again our results, but of new partners that did not invest before bringing funds to Méliuz to have a very good Black Friday on their side as well. Second great reason is the great innovation, great things we've done to our users on the part of shopping. In addition to the constant improvement we've had conversions that have been improving. We launched new products this year. And the other one is the Méliuz Prime that we launched in October, which is actually a subscription system that we have with several benefits with invoices, purchased bonus. This program it chooses to our partners to attain more engaged basis of those that are the VIP. And on the side of Méliuz, we ensure recurring revenue that we did not have with our users, an incremental GMV that we create new opportunities for them to gain and shop where they were not used to buy. This is very good to us. At the same time, it was more frequency of such and cross sales for other products. And we're very excited about this product. The engagement of our users so far has been very good, and we believe it's only going to grow from now on. This is one of the reasons that makes our Black Friday to be special this year.

I'm going to turn over to Andre, who's going to talk about structure ways of the midterm of Méliuz, our great focus from now onwards, now that we've reached the operational breakeven of the company.

[Andre Ribeiro, executive]

Well, thank you It's a great pleasure to talk to all of you sharing what Marc, and Israel have said, we're very happy with the results we're presenting today. Once again, it's not only this quarter, it's a year which we've been talking and commenting that we would directionally moving towards breakeven and resuming this cash generation from the last cycle of investments we had, in the past year we've had and giving a bit more detail of what we expect from now on. Gabriel mentioned very well of everything we carried out and accomplished in the past quarter in how we intend to continue leading the company from now on the fourth quarter and a bit of 2024.

I think we have 4 major pillars or principles that we'll certainly keep on focusing, and we may expect the maintenance of all of this over the next year. The first one is, no doubt, the maintenance of this operational efficiency. We may expect this cost basis in this slide that we've been delivering in the past quarter. We have created internally a playbook that is very efficient to maintain this cost discipline. The idea is to have it maintained constantly and always, and we should expect even more efficiency over the next quarters. And obviously, resuming sustainable growth of shopping. And we should expect that and something we've been commenting as well. over the past year is maintaining at least a margin of 2% of the net tech rate. We've been able to do this with great discipline. Gabriel has shown the numbers we've been able to grow consistently with the gross margin of shopping, not only with the core product and also with revenues and accessory revenues of new innovations with being delivery, especially the Méliuz Ed and most recently, prudently launched a few weeks ago, and we're very optimistic regarding it, which is Méliuz Prime. And it goes into the third block, which is innovation of our car business.

So we haven't stopped this. Once we clean the our cost basis, we should resume with great strength the part of growth in financial services and the core part as well, we should resume these with greater speeds of the next -- the fourth quarter and especially on the 2024, several things that have been happening in the shopping vertical and constant improvement, we should start seeing that uses of Méliuz and partners and part of our app, our website and everything, how this communicates with new products and financial services that we should launch it over the next quarter 2024 should give you more details shortly. Within that, we have innovations that have been very important to our results as many Méliuz Ads. As it's been mentioned, Méliuz Prime and all the deviations we can obtain from these 2 projects. And lastly, but not least, the well, scaling financial services. Well, the strategic alliance with BV. We started the first part of this year, making all the necessary integrations to put the product up and running, and we have actually a possibility of scaling. We had the cards and other products. We have new products. So this is what we expect to deliver, especially late last year and over 2024. And to recap how we reached the between reinstating this in the past conference calls. In financial services, we spent the first half of the year, practically making all the necessary integrations of Méliuz and Bankly with the structure of BV of BV's technology structure to enable us to open Méliuz accounts on the BV structure and card issuance Méliuz cards issues with all the funding credit part of BV Bank. Once we conclude that in the first term in the beginning of the third quarter, we start opening accounts. We announced this in the previous conference call. We started issuing the first card and opening accounts within this new structure. And the third quarter was a pilot phase scaling up in a careful way testing everything progressively with the end users the card issuance, and we were very successful at the end of the quarter in terms of number we reached with BV accounts almost 300,000 accounts opened. And the first card issued on this new structure of new models of credit, we are -- a bit over 20,000 cards in this pilot phase of the third quarter. What we have from up now onwards. First point, we actually stop and the legacy accounts, we withdraw of the access to the financial institution of the banking. And we dropped the legacy cards we had opened previously on BV with the trust of having moved over this pilot of third quarter well with account opening and card issuing. So this is the core of where we're going to build our ecosystem of financial services. We have several products being developed, and we expect them to be launched in the next quarter. New card Méliuz just mentioned, well, picks well, installment payment. Well, insurance, we are developing it. And shortly, we're going to launch new insurance as part of investment that we have started designing and building along with BV and Bankly to allow certain options that are quite interesting to our users as of next year.

I think I should turn over to Marcio, who's going to talk about the developments, and we can move on. On the development of the last stages of Bankly with BV.

[Marcio Penna, executive]

Well, thank you, Andre. Well, as we do in every webcast, in was panorama as to how our transaction with banking is going, we have the news from the Central Bank of the approval of the GO, very good. The expectation was not to have it as fast as it was. And with this, we expect to conclude our deal by the end of November. So we have several transactions, should complete the deal, get and receive the money. And the last Board meeting, we decided and the Board approved the call for a general shareholders meeting with the conclusion of the GO with Bankly, and we have the decision on the approval of capital reduction of the BRL 200 million. That's over actually part of the commitment of the company. So the reduction process is BRL 210 million. We had governance agencies with the Board of the The idea was to return the money that we would receive to shareholders. We fulfill our goal with great transparency. And we have a robust image of cash, generating cash now and this amount that we are going to receive from regarding Bankly, we proposed this capital reduction to actually compensate our shareholders in terms of regulatory process, we expect to complete the transaction with Bankly by the end of the month. As I mentioned, early December, we should call the general shareholders' meeting should happen by January have for an approval, which should be approved. We should wait for 60 days, considering the corporate law. This appoint that the creditors of the company can access to the amount, which is not our case. We don't have any debt in this case. We have to wait for 60 days, and after 60 days, we have the capital reduction effective and the expectation of the company is that by the end of the first quarter 2024, early second quarter 2024, we should complete all this capital reduction process. With this, we close our presentation, and I'm going to open up for questions by analysts.

[Marcio Penna, executive]

I inform you that First question is from Ricardo from BTG.

[Ricardo Buchpiguel, analyst]

Congratulations on your results. I'd like to ask about 2 topics. I think that the first looking at the difference of consolidated EBITDA parent company, it draws the attention to the losses of the other subsidiaries. I'd like to understand a bit when would it make sense to wait for the breakeven attainment in these subsidiaries? And which measures and dynamics would help with that? I know it's a case-by-case thing. You have certain things in there. But if you could give me some idea as to what -- how you move the pointer that will help. The other thing I'd like to understand better is the partnership with BV? I understand you get a commission of BV by account and card enabled on the release, you show the value -- issued of the cards and open accounts. I'd like to understand a bit what is this percentage of actually enabling card in the BV case? And if you could talk about the commission you get for each 1 of those products?

[Marcio Penna, executive]

Thank you for the question, Ricardo. I can talk about the difference of the difference of EBITDA and the consolidated EBITDA. The delta of consolidated EBITDA and the parent company EBITDA tends to go to 0 because we're improving results of the acquired companies and the trend is to reach to make both EBITDAs to be at a trend of 0 variation between them. Today, we have this variation because this variation because of Picodi. It's burning a bit of cash a little, but it does than some cash. And we also have a process on our side of financial services within Méliuz that is transitioned because of our own products because of BV, that impact the better consolidated in the lines of revenue and expenses, whilst in the parent company, better it impacts in the financial results. Having said that, the variation of EBITDA between parent company and consolidated is this impact that, one is falls in the financial results. That's why the parent company is a bit better than the consolidated Gabriel, can you answer the second?

[Gabriel Araujo, executive]

I can talk about the second. And just a comment, I think, the other ones going deeper into the Picodi part and Marcio mentioned, the other acquired companies, they are in the face of cash generation. And Picodi as expected, is at a time that Méliuz lived in the first years of investment of this migration of the vertical of coupon to cashback. It was expected. But even so, just as we invested this playbook of operating efficiency in Méliuz, we have been applying this there. We have been improved the financial efficiency and cost -- operating cost reduction. Even we have this investment considering this migration that was expected at this time of the company just as we had Méliuz some cycles over 10 years. And moving into revenue of financial services with BV. As I commented, the first quarter actually that we started. Well, we started scaling the account and card was over the first semester, we were in a pilot phase. We were consciously together with BV carefully scaling accounts and cards. We had a successful check there in the, say, scale tests with users. And then actually, now what we expect is to get to sort of a fast speed or full speed with accounts and cuts. We have several other accessory products that are as important as the account and cut for the growth and monetization both from Manus Méliuz and BV for the vertical of financial services. As to amounts, actually considering, well, the privacy agreement that we have with them, we cannot disclose the market values that we have negotiated at the time of the deal.

[Ricardo Buchpiguel, analyst]

Okay, that's clear. If you could have a follow-on. I know it's infel or even grow despite this the very beginning in this partnership with BV. Is there any sign that you can see regarding the quality of this client from the standpoint of risk and engagement? And if you could comment a bit on -- I understand that you see now more ability to growth greater scale for products. What is the appetite to risk of BV to issue more cards?

[Andre Ribeiro, executive]

Well, regarding risk, look, since it's a young portfolio, we started scaling it up in the third quarter. So the first seasons are competing the third month, which is the main indicator. 3 of cards, I think the first indicators we have is that the season is very good regarding credit. But as we've grown in a very careful way in the third quarter for BV to see what the base was like to start testing new policies. Although we are happy with the results we see and considering all the market scenario, all of you follow, we have had several things regarding banks for the whole. So we are careful regarding credit. So we actually do not expect a credit decision. It's a decision. It's a final decision of BV. We work together. We exchange data. So we provide a lot of information to our users to help in the credit decisions, but the final decision is theirs. And it's very much in line as we've seen in the general credit market in Brazil. We don't expect to issue in an uncontrolled way to speak. We have evolved a lot in conversation optimizing credit models in a very well aligned way to assure a growth in a healthy way. So the credit risk of being BV, it's not our interest to grow in a way that the portfolio cannot be financially steady, and we'll be doing it efficiently, ensuring gains to both parties.

[Marcio Penna, executive]

Our next question is from Matheus Guimarães from XP.

[Matheus Guimarães, analyst]

First congratulations on your results. I am particularly surprised with work carried out on the side of cost and expenses. My question is more on the side of revenue. We've seen GMV has been a challenge of the year, not only to you, to retail in general, but we see a slight reduction in the take rate. How should we look from now on? I think great part of the cost and expense part you've done, there should be something ahead. But overall, the company at the moment, is it more focused -- still very much focused on the cost side? Or is it time to go back looking at revenue? How to make it grow? Or should we expect some quarters to see a more positive revenue dynamic?

[Gabriel Araujo, executive]

May I take this one, Matheus. Thank you for the question. I think, first of all, we have never stopped having focus on revenue. We are relatively young company. Our goal is to keep on growing, generating more value to our users, have more users, ensuring greater retention of seasons and greater conversions at all stages. We actually have been through cycles of more investment as it's been the year of 2021 and cycles of cost reduction and expenses to optimize the financial results of the company has been in 2022, 2023. Our focus from now on, as Andre said, is sustainable growth of our business. We want to ensure that we maintain all the expense and cost lines under control. But yes, working hard to grow our business, our revenue and obviously, respecting the timing of the market in 2 verticals: e-commerce and financial services. And the credit challenges are goal has always been to grow. Now the focus on expenses continues. We want to continue ensuring this base of expenses under control, but the work to us is sustainable growth.

[Matheus Guimarães, analyst]

Super clear, Gabriel. Now you're talking about Prime. In terms of revenue recognition, how do we expect the evolution of it? -- this feature in the shopping Brazil line? Do you have a component which is GMV, but you have recurring expense revenue. Do you have any expectations as to how to present the numbers with that, looking ahead.

[Gabriel Araujo, executive]

Just the first comment, Méliuz Prime was not launched in the third quarter of 2023. We don't have the results in the report. We've just published is launched in the fourth quarter on the -- at launch. I don't know if Marcio wants to take this.

[Marcio Penna, executive]

I may. Sure. This is it, most likely it will be on the line of revenue of Shopping Brazil, along with the other items of Shopping Brazil. And obviously, gaining representativeness in the result, we provide more information, et cetera. As Gabriel said, it's something that we've just started. It's not impacted the results of the third quarter, should be not very significant in the result of the fourth quarter. It will grow gradually, Okay?

[Matheus Guimarães, analyst]

Okay. Congratulations once again.

[Marcio Penna, executive]

I'm now going to turn over to Sofie Barbosa from Morgan Stanley.

[Unknown Analyst]

Actually, this is Alex from Morgan Stanley. First, congratulations on your results. Reinstating it, we were surprised on the side of expenses. But I think the first question on my side, it's more in the part of cashback. I understand that this kind of policy is more on in your control. And what drew our attention reading the release is that great part or significant part of the cashback expense in the third quarter will be booked in the fourth quarter. The first question is trying to understand how much of cashback could we expect for the fourth quarter. And along with that, I understand that there is this timing mismatch. How have you seen the evolution of GMV over the quarter? And how do you see the growth or -- how do you see the performance GMV in the fourth quarter? And then I have some other follow-up questions.

[Marcio Penna, executive]

Great, Alexandre. Thank you for your question. On your point on cashback expense is a good point. We've seen in the third quarter, we had more incidence of GMV than previous quarter. This because of the mismatch, the expense is considered -- it falls into the fourth quarter, not the third. It's not very much. In terms of size, BRL 1.5 million, that is not in the third quarter, and it will fall into the fourth quarter. So the drop reduction in the cashback expense is much more a result of our profitability strategy than actually the mismatch, the amount that remained should have fallen in the third quarter, will fall in the fourth quarter is BRL 1.5 million, not very much. On the point from now onwards, Gabriel, would like to talk about that.

[Unknown Analyst]

I think just to confirm the question is how we see GMV from now onwards. How do you see in the fourth quarter and perhaps taking some color that you have in terms of outlook for next year. Since in the previous question, Marcio commented, we've seen -- we see some updated of GMV quite precious. How do we see it now and from now onwards?

[Gabriel Araujo, executive]

Okay. First of all, this is the fourth quarter. Now it's a period of stronger GMV that we have. We've been working hard with partners and users to generate as much GMV as possible. Still cost on margin and profitability of the revenue. Our focus on fourth quarter will continue to be to ensure our net take rate that is healthy, above 2% with a strong GMV considering the season period and the great innovations that we've been making in the shopping business. The next year, we cannot share forecast, but we can open up is a bit what Andre mentioned, our focus is sustainable growth of shopping from now onwards to ensure that we keep growing the business gross margin, and this makes overall for the company to grow its gross margin. So this is the main focus of the company. From now on, fourth quarter and next year.

[Marcio Penna, executive]

Gabriel, if I may add to the answer, we've been carrying out studies to close our scenario, our budget for next year. As Gabriel said, we cannot give you guidance. We've got many market numbers. We see that we have banks considering growth of e-commerce in Brazil of approximately 8% to 12% next year. Some others consider 18% to 20%, on average of 12%, 13% from the reports I've seen. I'd say that we are a bit more conservative. Our growth expectation for e-commerce next year is a bit below the market average. Obviously, what comes above that will be upside, but we'll be able to deliver without giving you numbers, we cannot give you guidance. We can deliver a EBITDA volume that will certainly be very well received by the market.

Perfect. Thank you, Alexandre. You said you have some other points. I don't know if you want to ask questions because you were the last person to ask questions.

[Unknown Analyst]

Well, I would then -- still on GMV, I'd like to understand whether you see some impact of remittance according to your GMV -- at the end of the day, you operate with some players that do cross-border. And your GMV, it has a stake that is relatively big or significant, I think it would be insane.

[Gabriel Araujo, executive]

I can take this one. I think, obviously, it is a concern of other partners that do cross-border in a more significant way. We have certain of those partners in our partner base. They are not as representative in the whole, but we've seen there working on the day-to-day to offset that in different ways, several partners working with coupons that are much more aggressive, more aggressive price on websites, more promotions, intensifying marketing. So we have seen this move on one hand. So this remittance impacts the final value for customers. So we see those partners moving to ensure GMV and the results. So these are 2 factors that one of each side. So it's too early for us to say which one will be the final impact to the result of those partners. On our side, they are partners. In the whole of Méliuz, there are little representative both in our GMV and our generated gross margin. We've been working with them to generate as much sales and results as possible as it is our role here.

[Unknown Analyst]

Perfect, I promise. This is the last question. But actually, you've mentioned that the -- you have some cross-border players that are more aggressive in terms of discount. Do you see your customers at the end of the day? Do you see them having more appetite in terms of spending more in terms of coupons, CAC, whatever it is to attract more GMV or increase the impact of the tax increment of cross-border?

[Gabriel Araujo, executive]

No doubt. This is part of the value we generate to our partners. We are a platform performance marketing that ensures higher results quantified and proven. So in this scenario with greater pressure and the sales volumes of those partners, no doubt, we become a channel that is even more representative with greater focus to generate results. I believe this indeed favors us, and we've been working in a very close way to those partners to find alternatives that enable them to keep the same sales level or even grow despite this.

[Marcio Penna, executive]

Well, since we have no further questions, I turn over to Israel for the final remarks.

[Israel Salmen, executive]

I'd just like to thank everyone for your participation for your questions, say that November is a very special month to us. It's always been, we're moving on to another Black Friday. The team is really excited, and we see great demand for our products of the Méliuz Ads, where partners create more exposure on our website. Our partners have done excellent work. We're very much focused. It's a super important month to us. We hope to bring news in the next conference call here. Thank you all very much.

[Marcio Penna, executive]

Thank you very much. Our conference call is closed.

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