Locaweb Servicos De Internet SA

BOVESPA:LWSA3

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Locaweb's Third Quarter 2020 Results Conference Call.

Today, we have with us Mr. Fernando Cirne, Chief Executive Officer; Mr. Rafael Chamas, Chief Financial Officer and Investor Relations Officer; Mr. Higor Franco, BeOnline and Software as a Service Director; and Mr. Willians Marques, Commerce Director.

Today's live webcast and earnings release may be accessed through Locaweb website at www.ri.locaweb.com.br. We would like to inform you that this event is recorded. [Operator Instructions] We have simultaneous webcast that may be accessed through the company's website. The slide presentation may be downloaded from this website, and please feel free to flip through the slides during the conference call.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Locaweb's management and on information currently available to the company. These forward-looking statements are no guarantee of performance. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that conditions related to the macroeconomic scenario, the industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I would like to turn over the conference to Mr. Fernando Cirne. Mr. Cirne, you may begin your presentation.

[Fernando Biancardi Cirne, executive]

Good afternoon. I would like to thank all our shareholders, suppliers, customers, analysts who are here today for the fourth results call and a call with even better results. We're having even -- we're having better results call after call with constant improvement, and it's not different this time.

We have several highlights of our operation, starting with the M&A. We bought the company Etus. We also signed for Social Miner, and we already have a binding proposal for Vindi. In respect to e-commerce, even with the reopening of the economy, we have accelerated the inclusion of new customers in our base. And in quarter 3 this year, we've reached an increase of 341%, a very expressive increase over quarter 4 last year. And this was -- we saw an improvement since the first quarter this year, and this has been growing quarter-after-quarter.

Also due to the massive inclusion of new stores and the quality of our product, our customer base increased drastically by 92% this year. Last year, it increased by 20% for comparison purposes. Our TPV increased by 160% over quarter 3 last year. The GMV increased by 90% over quarter 3 last year, reaching BRL 1.9 billion. We also intensified our brand marketing efforts for Tray, with the purpose of consolidating the brand as a leading platform for SMBs in Brazil. And this is very interesting because despite all these brand marketing efforts and the dominance that we have in the market, the productivity of our operation and the scalability that we have, we were still able to increase our EBITDA margin for Commerce to reach 42%. This is certainly very impressive.

On Slide #3, in the first quarter this year, we had already doubled the entrance of new customers compared with last year. Then in quarter 2, we had more than double or more than triple, 274% increase in the number of new customers. And in quarter 3, even with the reopening of the economy, we continued to see an increase of 341%. This is mainly due to the quality of our platform, as I'm going to show you in the next chart, but also the increased marketing efforts, the marketing efforts targeted at direct sales of the platform and also brand marketing efforts.

On the right, you see what happened with the -- with Tray's customer base. Last year, we grew by 20%. And even with this 20%, last year, we had a more than 40% increase in Tray's revenues. And this year, we already saw a 92% increase in Tray's customer base.

On the bottom left, we see all the data related with the entrance of new customers in the evolution of our GMV. So let's compare the first half of this year with the first half of '19. The Brazilian market increased by 47%. We grew by 74%, so we were 57% better than the market in terms of growth. And in quarter 3, we further increased our performance. The Brazilian market grew by 43%. Locaweb increased by 90%.

So we have 2 important conclusions here, that our growth increased massively even after the reopening of the economy and that we are growing more than the market, which means that our GMV is gaining consistence in relation to the Brazilian market. Last year, it was 5% of the GMV. In the first half of the year, 7.5% of the Brazilian market GMV. We don't have the GMV for quarter 3, but it's certainly more than 7.5% of the Brazilian GMV because there was a huge acceleration of Locaweb in comparison with the rest of the market.

On Slide #4, we show how much our ecosystem has evolved. If you're new to these conference calls, what's interesting here is that -- well, I don't mean to be repetitive for those who have been with us in other calls, but Locaweb doesn't really offer just a sales platform. We offer the largest and most complete solution for SMBs in Brazil. We saw a great increase in this quarter over last quarter with 328 integrations, including marketplace, ERP solutions, logistics, payment solutions, and this also leads to an increase in the sales of our customers. So the quality of this ecosystem added to the entrance -- the very strong entrance of new stores was what convert our GMV such a strong performance in comparison with the rest of the market. And this explains why we have so positive results in comparison with the other companies.

Now moving on to marketing. Well, I don't have time, unfortunately, to go into details about the campaigns. But we created a hot site, www.tray.com.br/midia, where you could see some of the brand marketing efforts that we are conducting and which will certainly support the sales volume that we have in the mid and the long term. So I encourage you to visit the website to get more information.

So very briefly, we have the Black Friday campaign and TV channels, YouTube, Facebook and Instagram. And before the reopening of the economy, we use -- we conducted a QR Code Action in which we place stickers in the doors of stores that were closed with the QR code for consumers to visit their e-commerce website; and also the billboard and advertisement boards and matches of the Brazilian soccer championship, which helped make Tray a leading brand, consolidating Tray as a leading brand in its field.

And BeOnline and Software as a Service, we are also seeing many achievements throughout the year and particularly in quarter 3. The first achievement is that the sales for premier in comparison with last year has grown by 25%. The sales to SMBs increased by 24% in this quarter over quarter 3 last year. And the growth of our sales in quarter 3 is 24% higher than in quarter 3 '19.

In the case of Nextios, which is our operations for large accounts, which is actually more sensitive to the pandemic, in the first -- in quarter 3, we had a 100% increase in our sales, which will bring good results for this segment in 2021. So Locaweb is not just sharing its results, but everything that I'm sharing with you today about the entry of new customers, in Commerce and the sales volume in large accounts, all of these things will ensure us good results next year as well.

Also, the cross-sell between Software as a Service and KingHost. We launched a product, which is called Cloud VPS, which increased the sales of new products, of new services to KingHost, and it's one single product called the Cloud VPS. We have much more in our pipeline in terms of cross-sell.

We bought the company Etus, and we are already capturing the synergies with Etus. Etus is a company that offers management of social presence and social media, Instagram, Facebook and so on and so forth. So this complements Locaweb's portfolio because we already had hosting services, we had e-commerce services, we had the application with Delivery Direto. And now we also do social media management, and we have the forefronts for those who want to sell online. And in addition to working in the forefront, this allows those that are already present in one of the fronts to buy from the other one.

For example, if a customer is looking for hosting services, we can indirectly offer social media management to the same customer. And the opposite is also valid. If someone is buying a store in our e-commerce platform, Tray, they can also buy social media management. So it is immediate and major cross-sell for our customers, which shows that we have some very strategic initiatives in sight.

Also in the integration between the Delivery Direto and Yapay and still about Delivery Direto, we have a strong increase in our customer base, which has doubled since the acquisition of the company in September last year. So it's not just in Commerce. Our BeOnline operations are still showing some incredible achievements which will bring amazing results for 2021.

Locaweb is not just thinking about this year's results, although they are very positive, but we understand that all these achievements are very positive. It will have a positive impact in the results of 2021 as well.

Now in respect to M&As, we have 3 major advancements here. So what do we look for in our acquisitions? We look for products with recurring revenue. So when we talk about Social Miner, Etus and Vindi, these are 3 companies that work on recurring revenues, also consolidated products. We will only buy companies with consolidated products, products that are not in their early stages, products that are already proficient. Also the potential cross-sell and upsell, which is the case for Etus. Etus is pure cross-sell by its nature. And all these companies already show good levels of growth. So by bringing them into our operations, we have a huge potential for incremental growth. And finally, talent retention. Historically, we have completed 9 acquisitions, and the employees of these companies continue with us, and it will not be different for these 3 new companies that we are acquiring.

And although we have advanced with Social Miner, Etus and Vindi, we have 11 companies with MOUs. So our portfolio of companies with MOUs increased. In the end of last quarter, we had 7 companies at this stage with MOUs or transaction terms under discussion, and now we are at 11 companies. And what I mean with this is that, although we advanced with these 3 companies that we acquired, we continue to pay a lot of attention to acquisition opportunities, and Locaweb will continue to focus on M&As.

On Slide #8, you see the history of M&As for Locaweb. Here, we have 9 companies that we bought, and these 3 companies were the most recent. Etus, which is a company that offers social media management -- social media presence management, such as Facebook, Instagram, LinkedIn and others, and more than 100 brands are already served by Etus. Social Miner is a Software as a Service platform for e-commerce and retailers to increase their sales, engage consumers, convert visitor flows using big data and artificial intelligence. And finally, we already have a binding proposal with 99% acceptance to buy Vindi. Vindi is the best Brazilian platform for subscription management. It's a great fintech that will certainly add a lot of value to our portfolio.

Now in the people and sustainability pillars, this is a major point of attention for Locaweb. We really want to retain our talents and manage our people really well. We have 2 highlights here in people and sustainability. The first is that Tray, Tray Corp, Yapay and KingHost are units won the Great Place to Work award and were placed among the top 35 medium companies the best to work in Brazil in 2020. This shows that the company really listens to its employees and is working to retain our best talent.

Also in inclusion and diversity, we had our second inclusion and diversity census. We have a diversity and inclusion committee that has conducted many activities with minority groups. And this census has actually led to real progress in the company. For example, we now have an increased presence of women in the company also in leadership positions and also increased number of black people and the LGBT people identified as such in the survey, which is also a motive for pride. We also launched the Quero ser Dev 2020 program focused on the education of female developers. This is 100% focused on women. We had a total of 983 enrollments, 310% more than last year's addition, and these women were from 23 different states in the country, which also makes us very proud.

In social responsibility, we have 3 work fronts that are relevant here. In consulting services, we launched a content initiative called Juntos no Digital, or together in digital, to help small and medium businesses with content on digital presence, finance, e-commerce and marketing, aiming to help these businesses to grow. In knowledge, we have partnerships with different institutions. One of them is the Associação Obra do Berço, which trains young people to conduct them to the job market. And we also have some one-off actions with more than 10 institutions. We help institutions such as Gerando Falcões, Anjos da Vida, Santa Casa da Misericórdia among others. We can't fully talk about all of them, but this is something that we're strongly working on.

And in environment, we have taken several measures that minimize the environmental impact of our operations. We have different efforts. We have our earnings release, and the details are there, but we have efforts to save water, to save power and which are also something that make -- something that makes us very proud. So we have a lot going on, a lot of interesting things that we're doing to evolve as a company.

And now I turn over to our General Commerce Director. Mr. Willians, please.

[Willians Cristiano Marques, executive]

Thank you, Fernando. Good afternoon, everyone, shareholders, partners, analysts who are participating in this call.

And before I go into the numbers for Commerce, I would just like to reinforce that this quarter was exceptional for us. We were able to further accelerate our booking even with the reopening of the economy and stores reopening -- brick-and-mortar stores opening in several regions. We were able to keep this trend going and accelerate further this growth. This shows that this trend towards digitalization is not a one-off event and is not temporary. It's something that is here to stay, and this is very important for us in the long term. And the numbers of quarter 3 are here to show that this is true. We continue to have very streamlined operations focused on quality, customer service, and this all shows that our team is working 100% remotely. So we are also concerned with the health of our employees and prevention of COVID-19, which is very present still in some cities.

And in this quarter, we also started to prepare -- our engineering team is preparing for quarter 4. Quarter 4 is a very important quarter for e-commerce. We have the Black Friday and then the holiday sales, and you're going to see that we have invested a lot of time and effort from our engineering teams to prepare our platform, so that we can have an exceptional closing this year, meeting the needs of all of our customers.

So let's go into more detailed numbers for the quarter. The first point is this ecosystem, which is the focus of Tray and the Commerce unit. In addition to the core platform, we want to connect as much as possible all the other integrations from other systems into our technology. And this quarter, we had nearly 160 new stores integrated onto the platform, reaching 230 ERPs and 22 marketplaces, 16 logistic companies. So this was a very busy quarter in terms of partnerships to allow us to offer new options to our customers in addition to all the integrations that we already have.

Now our performance for the Black Friday promotion period, our team worked on the optimization of our platform to provide a more scalable infrastructure so that we can really meet the needs of our customers in November and December. And our engineering team worked hard in part of this quarter and will continue to work hard throughout November for the Black Friday period. We are usually on call during the weekend of the Black Friday. We work from Friday to Monday, on duty to support our customers. And this year, this is even more important because it was a very difficult year for the retail in general. So the e-commerce platform has a very important crucial role supporting our customers to help them recover now that the economy has reopened.

In respect to Mercado Livre, which is one of the main integrations that we have in terms of marketplace, we saw a lot of evolution in this quarter. We had improvements in ad's health, automatic completion of information about customers. And one important launch was the integration with the fulfillment model in Mercado Livre, which means that logistics has become -- increasingly becoming a major tool for e-commerce. And we are always integrated. As soon as these marketplaces are available, we are always working to integrate as soon as possible so that our customers can use them as a center for their sales and logistics.

Now in respect to the integration with Amazon, which is also a very important marketplace for our customers, we also completed a logistic integration with Amazon and Amazon stores, the products of our customers. And with this integration, we can provide all our -- this option to our entire customer base. And whenever our customers sell a product that is stored by Amazon, they can manage the sale on Tray's platform, just like the -- so just like they do with Mercado Livre, now they can do with Amazon, which means that we have a core e-commerce platform to allow them to sell on social media and online, but this is also integrated with all the major marketplaces in Brazil. We also had other minor evolutions in other channels, but Mercado Livre and Amazon were the highlights of this quarter.

And finally, we also saw some major evolution in our omnichannel strategy. It's a trend that has accelerated even further during these times of digitalization and while the stores -- the brick-and-mortar stores were closed. A lot of stores adopted the easy pickup, drive-thru and pickup modalities at their stores. We invested a lot of time and innovation to enhance these functionalities and allow our corporate customers more flexibility to create rules and to create sales models, considering these modalities such as store pickup and drive-thru, so allowing drive-thru for the pickup of products, which means that we reached a very complete omnichannel solution for our corporate customers. We also had many other improvements that are better described in our earnings release, but these were the main highlights this quarter for Commerce.

Now I would like to turn over to Higor, our Director for BeOnline and Software as a Service.

[Higor de Araújo Franco, executive]

Thank you, Willians. Good afternoon, everyone. I would also like to thank our shareholders, employees and partners, suppliers and customers who are attending this call.

Before I go into the highlights for BeOnline and Software as a Service, I would just like to talk about one of Fernando's comment about the acquisition of Etus and how strategically important this acquisition will be for us in the next steps in terms of the use made by the customer of Locaweb solution.

One thing that's very frequent today is that the early stage store owner or entrepreneur, they will start their digitalization effort through social media. We have data proving that approximately 74% of the companies, the SMBs created in Brazil use Facebook to sell their products or services or to build relationship with their customers. So the acquisition of Etus is immensely important for us because now we will be present in the first stages of our customers' digitalization. It's the stage in which they use social media. We are now starting the integration work, and this has been expanded to all the customers that access Locaweb's website. They already have the option to buy the solution. And looking forward, these solutions will be present in Locaweb's products, so that our customers can use social media additionally to other Locaweb products.

So just a few words about cross-sell with KingHost. This is an important step towards the cross-sell agenda, so including products that are already successful, products -- Locaweb's products that are already successful inside KingHost portfolio. And the Cloud VPS is an absolutely successful product of Locaweb that has a huge fit with KingHost's customers. As Fernando said, the Cloud VPS already has a share of about 10% of KingHost sales, and that is only for the first month. So we're talking about just a few days of this product being available in KingHost portfolio, and it already has a huge representativeness. And it brings an amazing differentiator.

And inside Locaweb, we had no losses whatsoever of the sales of these products that were being performed through Locaweb. So we found a new market via KingHost. And this is just reinforcing the importance of the cross-sell strategy and the relevance that we have been giving to the cross-sell agenda within our strategy. I'm sure some of you know that we are structuring the team and preparing the actions plan to make this happen, and we are starting now to take some important steps in that direction.

Now about the WordPress application installer. Why did we add this point here as a highlight in this conference call? So just for your information, the WordPress software is a software for website, blog and vlog management and creation. Approximately 20% of the websites available in the Internet in the world use WordPress to work, to operate. So the importance and relevance of this platform to any customer that has a website is huge. And here, our focus was to provide our customers with a better experience when using the solution and increase the operational efficiency inside the company because we -- in the past, we were using a third-party software that didn't really deliver optimum experience to our customers.

So the purpose here was to deliver a new solution based on WordPress, which is much faster for our customers and much easier to operate, much easier to install. And as a plus, we also achieved some efficiency gains by using the solution. So this is another highlight in Locaweb. We are developers by nature. We develop our own solutions. We are also a software company. So using our own software to gain efficiency is our core business, and this is a very important point.

Another important cross-sell point is the rollout of Yapay for the Delivery Direto's customers. This was an effort of the Delivery Direto team, together with Willians' team, that started about 2 or 3 months ago. And currently, about 50% of the Delivery Direto customer base are already using Yapay and have Yapay available for their sales, for their own delivery using Yapay at lower rates using the anti-fraud and charge-back tools offered by Yapay, which are much more efficient than what we had with our past solution. And the speed of evolution was very high. So this is another highlight in terms of our evolution this quarter, which makes us very proud, this very fast evolution of the cross-sell between the Delivery Direto and Yapay.

And the last point here, Locaweb has a very large popularity and relevance for the Internet in Brazil. A great part of connections and e-mails in Brazil go through Locaweb. And in the past few months, we saw significant increase in fraud attempts through e-mail, spam. And cyber threats in general started to increase during the pandemic due to all the market movements and the government income transfer programs during the pandemic. This all led to an increase in cyber crime.

So what we did, we anticipated this trend, and we started to produce an artificial intelligence software which was implemented this quarter, which really increased the level of security for the customers that use Locaweb for e-mail or as their main e-mail tool. And the level of security and quality that we are now able to provide these customers in terms of e-mail phishing, malware filters is a drastic change. So this is another delivery that really makes us proud because Locaweb is truly helping protect the society with this type of product because at the end of the day, we are contributing to make the entire Internet environment safer with solutions like this.

So these were the highlights. You can also read our earnings release, which provides more details about everything that happened in BeOnline and Software as a Service.

And now I turn over to Mr. Rafael Chamas, our CFO.

[Rafael Chamas Alves, executive]

Thank you, Higor. Good afternoon, everyone. It's a pleasure to be here for yet another call.

I start my first chart with a summary of the highlights of our results in quarter 3. On the left side, we have operational results. On the right side, we have financial results. We closed quarter 3 with a revenue of BRL 126 million. It was a 23% expansion in the company's revenue. Of course, this was pulled by e-commerce, which grew by 90.3%. Both in GMV and TPV that also increased greatly, 90%, 160% for GMV and TPV, respectively, and this is reflected in the growth trend that we see for the group.

The revenue for Commerce, this means a nearly 4.2% expansion over last year, and this was due to some operations. So we had an expansion of 30% in the company's net income. The cash generation was very healthy. So far, we have generated BRL 57 million over 9 years, which is a robust growth of nearly 50% year-on-year. And we have a net cash position of BRL 449 million. So even with the mergers and acquisitions, we still have very robust cash to continue to conduct our strategies.

So as I said, we had an increase of 23.8%, and there's an expansion of the relevance of the Commerce operations of 11 percentage points. So 21% in 2019 and 32% in 2020, which led to the 90.3% growth. Another relevant aspect is the TPV growing by 160% and the GMV by 90.4%, which shows the acceleration of both the platform and our capacity to allow our customers to sell more and also the increased share of own store sales, which leads to value capture through our payment solutions as well.

In terms of acceleration, Commerce grew by 90% this quarter; and in the first half of the year, 51.7%. So over the first 9 years of the month, this leads to a 65.8% growth. This is an operation that is bringing more customers more GMV, more TPV and benefiting from the acceleration of the revenues.

Now moving to BeOnline and Software as a Service. We also saw an increase of 6.4%. We closed with a base of 373,000 customers, which is very relevant for cross-sell opportunities. And Higor talked about this, but the cross-sell trends will continue with all the future acquisitions that we have planned. And also this trend towards acceleration is due to the higher sales in SMBs. Our corporate operations had nearly 100% growth, Delivery Direto with payments and with its own organic operation of the platform, and of course, the new acquisitions. When we add all this up, this creates a very positive trend for this sector.

Slide 15. Here, we have the EBITDA of the individual company's operation and the consolidated. So we closed the period with an EBITDA of BRL 35.8 million, margin expansion of 18%. But in Commerce, we move from a contribution of 26.2% in Q3 '19 to 7.5% (sic) [ 47.5% ] in Q3 '20. So in terms of EBITDA, it's a 50% increase. And because this is an asset-light operation, the cash generation is even more relevant.

Now looking at it by operation, the Commerce operation goes from BRL 7.9 million and 35.7% (sic) [ 37.5% ] of margin to -- and closes the quarter 3 2020 with BRL 17 million and 42.1%, with the maintenance of the margin that we had in the first half of the year which was about 42%, even with increased investments in marketing that we have. So it's a very healthy cash generation. And in BeOnline and Software as a Service, we had been having -- we had a 16% drop year-over-year, particularly due to the foreign exchange impacts. But it's worth noting how scalable this business is and that we had an expansion over quarter 2 this year, which shows that the dynamic is changing.

Now Slide #16, the adjusted net income. We closed the period with a 30.4% increase with BRL 12.5 million. The adjustments between net income and adjusted net income was due to the cash and the stock option plan. And year-to-date, we have BRL 28.9 million, which is a 62% expansion year-over-year. So that's how these asset-light operations are helping with our profits.

And the next chart shows the cash flow of the company. We closed the quarter with BRL 40.2 million of net cash provided by operating activities, a 56% expansion. The CapEx of the company is proportionately lower in relation to its revenue. And in absolute values, we have a CapEx 14% lower in the first 9 months of 2020 compared with the previous period, which shows the leverage -- the growth of e-commerce, Software as a Service and are bringing to our operations. We had BRL 16.7 million due to the payment of Etus and the amortization of debt with interest of BRL 21.9 million. This leads to a very healthy cash generation. And this can be seen on the right side of the chart at the bottom right, showing the adjusted EBITDA minus CapEx, 46.8% in our cash generation, very robust.

Slide #18, our cash position. We closed the period with BRL 520.4 million cash position with a net debt of BRL 71 million of the lease liability, leading to a net cash of BRL 449 million in the period. So it's a very healthy cash position that allows us to continue with our strategy to expand through acquisitions.

And now I will turn the conference back to Fernando for his final remarks.

[Fernando Biancardi Cirne, executive]

Thank you, Rafael. Thank you, Willians. Thank you, Higor.

I think that in addition to the very solid results that we are showing in the first quarters of the year, most importantly, we are paving the way for an even more robust and sustainable growth in 2021. And this is what we want. We don't want one-off results. What we're looking for is sustainable robust growth, and this can be seen in some of the points that we highlighted in this operation that will ensure our growth or the continuity of our growth in 2021.

The first point are the marketing efforts that allowed for the addition of new clients. And we brought the addition of new clients to a new level. So regardless of the pandemic, we are now -- we raised the bar. We are now working at a new level of addition of new clients. And we know that our customer base in Commerce had an ARPU multiplied by 7 over the course of 3 years. And this is already happening. This is what we are measuring right now, which means that we have a fourfold increase in the volume of customers. But this is -- this doesn't explain all of our results but will explain the results that we will see in the next 3 years.

Our GMV is growing much above the markets, and this is actually accelerating. We already have a history of growing above the market levels, but we are growing more and more above the markets' levels, and this will also ensure sustainable growth in the coming years. The growth for BeOnline and Software as a Service, the growth of the booking of new SMBs and also large accounts in the case of Nextios, and this will bring immediate results. It is actually bringing in immediate results in the numbers of 2021 because of the recurring revenues.

M&A, we have 3 operations completed this year, and we have a pipeline that has actually increased over last quarter. M&As are important to us. We know what we want with our M&As, and they will certainly contribute to better results next year.

People. Our people are of utmost importance. We depend on our people. And that is why we have programs to attract, retain and motivate and respect our people. And this is what we have been showing in all our results conference calls and will continue to show in the future. This is certainly a strength that we built for and that will continue in 2021.

And finally, we are a company that is capitalized with its IPO funds, with strong and consistent cash generation. And because of all these reasons, we have been showing good results quarter-after-quarter. And this is why we believe that we will not only have a very good quarter 4, but we will also have an incredible 2021 for you, our shareholders.

And thank you very much for your attention. And now we can open for questions.

[Operator]

[Operator Instructions] The first question is from Eric Huang from Eleven Financial.

[Eric Huang, analyst]

Congratulations for the excellent results. Could you please give us more details about the customer base in Commerce? We know that the recent customer base -- the recent additions are very good customers with a good sales volume. Is this a trend that we will continue to see in the future?

And also about BeOnline and Software as a Service, you talked about the gross margin and how it has evolved quarter-after-quarter. So can we expect to see the same thing in quarter 4? And then maybe for 2021, we will see levels that are -- with an offset of the foreign exchange variation this year?

[Rafael Chamas Alves, executive]

Eric, this is Rafael. Thank you for your question. Just some general comments about e-commerce, and then Willians will answer your question, but the quality of this customer base has been kept very high. Even with this expansion, something that's making us really happy is that we see that these new customers show a great sales capacity, and that's why we have such a net relevant expansion in our GMV and TPV. There's -- we haven't really been seeing any risk or pressure of -- in terms of these customers being different from the customers that we had last year, for example. So these are very healthy customers.

[Willians Cristiano Marques, executive]

And also, Rafael, it's not just about the quality of the customer. I also reinforce the quality of our operation. Locaweb has onboarding efforts. It has education efforts. We have our e-commerce school, a platform with more than 2,000 contents about -- that help our customers in the success of their operations. So the quality of the customers matter. A lot of customers that have off-line operations are now becoming online, and this continues. It's the same that we had last quarter. So the quality of the customer and our internal efforts, they are a differentiator.

We are operating better than our competitors. And all this together, based on the initial reading of the churn, we see that we are having the same level of behavior or even better than the period pre-pandemic. And of course, we will see the same ARPU increase that we have historically. So as we said, multiplying the ARPU by 7 over 3 years, which makes us very comfortable and optimistic about what we have been seeing in terms of the quality and the sales volume of these new customers.

And you also asked about the gross margin, right? Yes, Eric, and I really reinforce the scale gain of our operations. This is a very important characteristic when you're selling digital products for SMBs. And yes, we are seeing expansion of the gross margin over time in both operations, and of course, in our consolidated, the Commerce ends up pulling the numbers up. But when we look at BeOnline, we also had an expansion in the gross profit from quarter 2 to quarter 3, and this is a very relevant part of the cash generation that we are expecting for next year.

[Eric Huang, analyst]

And once again, congratulations for the excellent results.

[Operator]

The next question is from Mr. Vitor Tomita, Goldman Sachs.

[Vitor Tomita, analyst]

I have 2 questions actually. The first one is about competition in Commerce. In the context of that strategy to invest more in brand marketing for Tray, could you give us an up-to-date view of how you're seeing the competition environment in e-commerce nowadays? And how much of Tray's growth in terms of competitor platforms versus new stores? Is this market share more relevant now after your brand marketing campaigns?

And the second question is about Yapay. What is the status of the evolution of Yapay to customers outside Locaweb space as well?

[Unknown Executive]

Thank you, Vitor, for the question. Would you like to answer this one, Willians?

[Willians Cristiano Marques, executive]

So a little bit about the branding efforts at Tray, we started in the second quarter so it's not been long. We have campaigns planned until the end of the year and also for next year. But we understand that in order for us to consolidate Tray as a reference e-commerce brand in Brazil, that's what we need to do.

In respect to the competition, there is no reference brand. What we have are very pulverized competitors. It's a very large market. Most of the companies are not even digitalized. So these investments are for the long term, particularly in branding. But in the short term, we have also been reinforcing our investments in online media focused on selling online stores and Google campaigns much more targeted at conversion.

Now looking to this environment, we have platforms for small customers. We have a global platform, and the great advantage that we have is our local view, our integrations with our ecosystem, which is both for retailers that are totally adapted to the Brazilian market. So we have collection or charging in reals, so much more competitive prices. And we have other competitors for smaller publics and other platforms that are also competing for this market. But our solution with the ecosystem and the marketplace we understand is the most complete solution and the most local solution, which is what retailers want.

Now a little bit about booking. Today, about 15% comes from customers that already have an online store. So it's not such a high number. And historically, this was even lower. So now it has increased. Our gain over the competition has increased, but the largest booking is still for non-digitalized companies, companies that are still in the traditional economy and are now moving to digital. That accounts for a great part of our booking.

And the second question about Yapay, Yapay is -- has a large focus on the group's customers. So it has worked really well with the Tray platform, and it is growing very fast in the Mercado Livre base. We are expecting to explore all the synergies for payment. So we want to make Yapay the main payment platform for [ VG's ] customers.

And also to reinforce the growth of Yapay out, we are conducting a lot of structuring actions, and one of them was recently hired in October. We hired Natália Tukoff, a Senior Director who took on the position of Commercial and Marketing Director of Yapay, and she comes from the market from a reference company in payments. And she joined the team to start structuring the payment area to outside of the Locaweb's ecosystem. We are already growing organically. But with this new director and by reinforcing our team, we expect to see an acceleration in this growth next year in addition to the synergies within the group itself.

[Operator]

The next question is from Ms. Susana Salaru, Itaú.

[Susana Salaru, analyst]

The first question is about the building of the TPV. I know that you have -- you talked about own stores. Do you think this is a trend -- this will be a trend in the future that Tray stores -- do you think that this will continue after the pandemic? Or do you think that this is something transient, and it is going to decrease as we come out of this pandemic? This is my first question.

And the second one is about your margin. There's a large brand awareness effort in Tray that should continue in the coming years. So what we would like to know is that if this marketing effort will continue and the operational leverage that you have been gaining quarter-after-quarter that we don't see really well because of this additional marketing effort. Do you think that this will be diluted in the coming years?

[Rafael Chamas Alves, executive]

Susana, this is Rafael. About the TPV and the GMV, here, we know that TPV grew a little bit more than GMV. But if you look at the historical picture, what we saw over time was that our sales action in our own stores with our complete mix of products and services has been stabilizing. This was a very strong quarter in our own stores. We have been bringing solutions to try to further capture sales from customers, own store sales from customers, and this is part of our strategy. And thinking about maturity of the cohorts, the evolution of the cohorts, our expectation is that our customers can always bring more sales to their own stores. And we have been investing in the platform, and the solutions and acquisitions are totally related with this, so that customers can increase the loyalty of their customers within their customer base. And we can also benefit from that through our payment system, the payment system that we can offer them.

Now for your second question, the commerce operation had a relevant gain of scale. I don't mean to point where our margin is heading, but our expectation is to increasingly invest in brand marketing. We are convinced that there's still space to capture more sales, but we want to do this in a healthy way regarding our cash generation. We don't want to harm the company's cash generation and the future margins due to this. But with this level of gross margin that we have with our customers and the scaling capacity that we have, these investments are very viable at the end of the day.

[Operator]

[Operator Instructions] The next question is from Mr. Thiago Suedt from XP Investments.

[Thiago Suedt, analyst]

First, I would like to congratulate you for the great results that you just presented. My first question is -- well, I want to know more about the GMV. It was really striking to see your levels of GMV and growth in quarter 3 versus quarter 3 last year. So can you please elaborate on how you are seeing this for October and the start of quarter 4 in November? Are you seeing any deceleration of this growth? Any stabilization of this growth?

And a second question about M&As. I read in your earnings release that you -- there's a disclosure here that you will keep the market up to date about your next steps. So can you talk a little bit about the timetable for onboarding for integration of Vindi to your business?

[Fernando Biancardi Cirne, executive]

This is Fernando. We can't really talk about October, November and December. But what we can tell you is that we continue to see expressive growth, very expressive growth over last year, and that the indicators are particularly better than last year's, which means our operation is still very healthy compared to last year. This is all we can say, unfortunately.

Now regarding Vindi, when we are able to give you more details about Vindi, and we will disclose the information to the market eventually, but what we can tell you now is what is in the earnings release. We already have 80% of the team onboarded. And the founders are included in that. The integration of any company goes through the strategic pillars that we always talk about. We want to maintain the people because the people will help us in the future. We want to capture synergies through cross-sell development, and this is what we will do with this acquisition.

At this point, what's important to say is that in addition to being a reference in the market, the company meets the 4 criteria that we have: recurring revenue, high potential for cross-sell, a company with very qualified high-level people. So this is what we like about this company, that it meets the 4 criteria that we have as requisites for an acquisition by Locaweb. And we will update the market as the -- as this progresses over time because there's all the processes involved with governance and the funds. It's just the regular process whenever an acquisition takes place, and we will communicate the market in time.

[Operator]

The next question is from Osni Carfi, BTG Pactual.

[Osni Carfi, analyst]

It's about the integration between Delivery Direto and Yapay. Will you make it mandatory for Delivery Direto customers to use Yapay only? And you said that 50% of the customer base is already enabled to use Yapay. Was this a driver for the growth that we saw this quarter? Or should we continue to see this in the coming quarters? Because we think that this could be very relevant for your future growth. So can you give us more information about this strategy?

[Higor de Araújo Franco, executive]

Osni, this is Higor. Thank you for your question. In respect to the mandatory use, all customers that choose Delivery Direto for payment, so all customers that choose Delivery Direto as the payment platform for their customers, they will have Yapay as the main option, and another option they have is to use their own payment platform at the time of delivery. So the courier can bring a card machine or were even studying other payment options that do not necessarily involve the application. So other options that may come up in the future, but Yapay will be the core for payment transactions. So whatever is done digitally will be delivered via Yapay as a priority, and now everything that is done in the physical world, the customer can choose what they find the most convenient payment method. We don't see a lot of evolution this quarter. But as you said yourself, the opportunity in the coming quarters will certainly be a significant evolution.

[Osni Carfi, analyst]

And if I may ask you a second question. I know that you can't really talk about Vindi right now, but we know that this acquisition will bring your TPV to a new level. And there's also the integration with Delivery Direto and Yapay. So this new level of TPV that you will achieve with Vindi, what are the synergies that can come from that? What are the gains that can come from this possibility?

[Unknown Executive]

Osni, thank you for your question. So what is the main point for us? These are strategic moves, and any strategic move that we deem beneficial that can help the profitability or the cash generation of the company will be a good option. But investments have to be prioritized, right? Any investments that will bring good returns for us will be an option. And whether it will -- vehicles actually pursued or not depends on an analysis, but we certainly have a very relevant TPV level in the group.

[Operator]

Now I'll turn back over to Mr. Fernando Cirne for his final considerations.

[Fernando Biancardi Cirne, executive]

I would like to thank you all for attending, all our shareholders, suppliers and everybody who really helped us achieve such good results. And I would like to thank you for your support and for attending this conference for taking the time to come here and listen to us for the last 60 minutes. And we'll see you in the next call when we will announce the results of quarter 4 and the consolidated results of the year and celebrate the anniversary of our IPO. Thank you. Have a great day.

[Operator]

This concludes today's Locaweb's second -- Third Quarter 2020 Results Conference Call. Thank you all for your participation. Have a great afternoon.

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