Locaweb Servicos De Internet SA

BOVESPA:LWSA3

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to LWSA's Q4 2023 Earnings Conference. Joining us today are CEO, Fernando Cirne; and CFO and IRO, Rafael Chamas. For the Q&A session, we will also be joined by BeOnline/SaaS VP, Higor Franco; SME Commerce VP, Willians Marques; Commerce and SaaS Enterprise VP, Alessandro Gil; and Financial Services VP, Cassius Schymura.

This conference is being streamed online via Zoom cast with simultaneous interpretation into English and will be available for replay at ri.locaweb.com.br. You can download the slide deck for this presentation at the same website's results center under the Financial Information tab.

The reported figures are denominated in Brazilian real and have been calculated in accordance with Brazil's standard accounting practices as per the statements, guidelines and interpretations issued by the Brazilian Accounting Pronouncements Committee.

Before moving on, we'd like to mention that the statements contained in this document regarding LWSA's business prospects, operational and financial forecasts as well as future growth estimates are merely projections and as such, are based solely on its management's outlook for the business. This outlook relies heavily on market conditions, the performance of the Brazilian economy, the industry and international markets and therefore, may change without prior notice.

Unless otherwise stated, all variations and rounded-off figures here presented have been calculated in thousands of Brazilian reals. This business performance report includes both accounting and nonaccounting data such as organic and pro forma operating and financial results as well as projections based on the company's management's expectations. The nonaccounting data have not been reviewed by independent auditors.

[Operator Instructions] I will now turn it over to Mr. Fernando Cirne, who will begin the presentation, followed by Mr. Rafael Chamas. Please, Mr. Cirne, you may proceed.

[Fernando Biancardi Cirne, executive]

Thank you, Paolo. Welcome to our Q4 2023 Earnings Conference. I'd like to thank all analysts and everyone who, in some way, contributed to the results that will be presented today.

Moving to Slide #3. I would like to start by talking about profitability, EBITDA and cash generation during this Q4. On the topic of EBITDA, our consolidated margin came to 19.7% in Q4. That's 3.7 percentage points higher than in the same period 1 year earlier. This was the widest quarterly EBITDA margin since the company began its acquisitions process.

Also on the issue of EBITDA margin, the EBITDA margin for the acquired companies came to 10.2% in that quarter. That's 22.1 percentage points higher than 2 years ago. The company has been working steadily over the past 2 years to grow this margin since then. And we increased that margin by 13 percentage points over 1 year earlier. That was the result of strong operational leverage and the strong growth by most of those companies we've acquired.

This is something we really wanted. And we have been telling the market, we would work steadily to have these gains, and that's what we've delivered. Obviously, there's still room for growth, but we understand these 22 percentage points that we've widened the margin over the last [ 2 ] years for a significant gain.

Our adjusted EBITDA increased by 41.5% versus Q4 2022 and 26.3% versus Q3 2023, the prior quarter. This is another important message. We have been able to grow our EBITDA more than we've been able to grow.

And lastly, to the cash flow point, our free cash flow has outgrown our EBITDA. It came to BRL 84.3 million this quarter, which is 93.8% higher than in Q4 2022. This is to say the company is gaining more efficiency across its value chain, growing its cash more than its EBITDA and growing its EBITDA more than its growth. That's the message we wanted to send to you during these highlights.

As for growth, our net revenue grew by 14.8% versus 1 year earlier. And overall in 2023, we grew 13.9%. Our commerce operation grew by 18.2% versus 1 year earlier, reaching BRL 243 million. And in 2023, it grew by 21.8%.

And now moving on to Slide 4, it's very important to give you some context about this period when our profitability grew so much. We'd like to add context in what we determined were 4 very clear periods since the company had its IPO.

First, we had the pre-IPO period, a time when we were very much focused on the BeOnline and SaaS operations. Those operations accounted for 80% of the company's revenue. The company was growing less, but with wider margins.

And this was a time when we were taking our first steps in our e-commerce operation. This was prior to our IPO. Then we had our IPO, and we began to see outstanding growth because of this movement in the inorganic side. We began to create a more powerful ecosystem. And yes, we began to enjoy narrower margin because the margins of the acquired companies were a bit lower.

Then we interrupted our acquisitions, and we entered the maturity period, which ended -- is a period that ended at the end of last year. That's when our ecosystem came to 20% of Brazil's e-commerce ecosystem. We worked on integrating all our M&As. We saw a substantial increase in profitability because of our operational leverage and also, we were able to streamline our brands and corporate structure.

Now what do we expect moving forward? Well, we expect to continue to grow our profitability, and there's still room to grow our profitability. But we are now showing the market that this is something we know how to do, and we're skilled to do. We'll also be accelerating our growth, and we'll talk about this a little bit further and also unlock some values within our ecosystem.

Moving on to Slide 5. It's also very clear how we are showing the company to the market today. We now have a much leaner company when it comes to our different journeys. We have 4 essential journeys, 1 which is our old Locaweb, our BeOnline/SaaS operation.

We have our Commerce PMEs and Commerce Enterprise journeys as well as our ERP journey, all while working with 2 essential cross journeys, which would be our financial services journey and our logistics journey as well. But in essence, we're talking about only 4 when talking about business journeys.

This is a lot simpler when you consider the number of companies we've acquired. This is a much simpler company with only 4 business journeys. And this is much because of the technical integrations we've accomplished and also a result of the brand simplification process we've been through. This essentially sums up what LWSA looks like, and these are the journeys we'll move forward to add value to our stakeholders and also grow the company value as well.

So now moving on to Slide 6. When we talk about growth, we did provide some acceleration. But again, it's important to remember that growth, while very important, also comes with EBITDA margins that are outgrowing our revenue growth and also free cash flow that's outgrowing our EBITDA. Of course, we want to grow, but we do not want that growth path to eat away at our EBITDA and free cash flow. So we have a few avenues for that.

First of all, expanding TAM via Wake. This is a mature process that is expected to bring more revenue in the second half of this year.

Then pricing. We understand our suite of products, especially on the commerce side, may grow in value. And we have been working on that since Q4 of 2023, but there's still a lot of room to work on. This is a long-term effort, which is why I say that the impact of pricing on our revenue will be incremental over the course of this year, just as the one on the cross-selling side.

We've already done a lot on the logistics side, and it's working really well. And this is another effort that should have an impact over the course of 2024.

And lastly, on financial services. We are still at a go-to-market period, so there's still a lot to do. But everything is very well orchestrated and well planned in-house. And we should see the impact on revenue later in the second half of this year.

And lastly, we have inorganic growth. We know how to do inorganic growth, and we've done much of what we plan to. But I would say that right now, it's not a very easy time for us to continue to grow inorganically, first of all, because we have a very well-rounded ecosystem. We have no product gap to fill. So we're talking about acquisitions that would have to make sense concerning the size of the company. They would have to be suitably priced when it -- when we compare to the size of the company.

And it should also be compatible with the way we operate currently. The companies we've acquired so far are profitable. I mean we're talking about a 10% margin growth. So this is not a simple formula.

We have never stopped looking at potential acquisitions. But at this point, any new acquisition would have to fall in line with these 3 points, which makes this not a simple move, but we have never stopped looking at it, all of that working with continued investments in AI.

We already have AI products that we have put out. And AI pervades not only our operational side, but also it has great potential to improve all journeys across our ecosystem. So we are very much engaged on the AI front, which will certainly helped to boost our avenues for growth.

Now moving on to Slide #7, I'd just like to quickly go over a few of the companies operating indicators. We have our commerce revenue, which increased by 18.2% over the last year. That's broken down into subscription revenue and ecosystem revenue. Our platform subscription revenue was up 22.5% and on ecosystem by 15.2%. That was largely because of Squid. We are working hard to gain profitability in Squid.

We did gain some profitability during this quarter. This was one component that helped to boost our margins by 10%, but it also came with the effect of making us more selective when it comes to less-profitable contracts. So our revenue from Squid was slightly lower because of that. We became a pickier here when it comes to selecting our contracts. And that had an impact on what we call the ecosystem revenue.

I'd say that in the long term, ecosystem revenues tend to outgrow those from platform subscription, and commerce tends to have a wider share of the ecosystem revenue. But right now, when we are balancing out the revenue from Squid, we saw this dip, but we expect that to move up again in the medium term.

Moving on to Slide #8. Here, we have our GMV from the ecosystem and subscriber base in the commerce operation. Our ecosystem GMV has grown by nearly 18%. We've reached nearly BRL 17 billion in transactions this quarter alone, which is to say we had a substantial rate of the Brazilian commerce ecosystem GMV.

So lastly, our commerce subscription base came to nearly 200,000 stores. That's a very strong figure. And it shows how representative we are and how prepared we are for the company to start growing again.

This is not something we rely on, but were the economy to accelerate, we have nearly 200,000 subscribers who are poised to sell more. And this is not considering -- or rather not considering subscribers, we have 470 customers operating within our ecosystem.

So moving on to the last slide of our highlights. Our own-store GMV growing by 22.7%. And it's important to point out, the Q-o-Q increased by over 17%, which is, again, very representative. Obviously, this is a quarter where we had Black Friday and where we had Christmas. But nevertheless, this is a very interesting figure. And finally, our TPV, our payments operation, saw BRL 1.8 billion during this quarter. That's a 20.7% increase year-over-year.

Well, that's essentially it. I think it's sound overview of our operations during this quarter. And I think it's important to highlight the high -- the slide with our stages that shows investors the 4 different periods for the company.

A lot has happened over the last 4 years since we had our IPO. And it may seem like our strategy has changed, but in fact, it's very clear for us that we have these different periods, the acquisition period, the change in ecosystems, the maturity period and now a time for growth and gain profitability.

So thank you very much for your attention. I will now turn it over to our CFO, Rafael Chamas.

[Rafael Chamas Alves, executive]

Thank you. Thank you, Fernando. Good morning, everyone. I will start on Slide 11, showing you a few more figures. Fernando added some context, and we will now go a bit deeper.

We ended our quarter with a net revenue of $347 million. That's a 15% increase year-over-year, driven by commerce. Our commerce operation increased by 18%, ending Q4 at BRL 243 million.

And quarter-over-quarter, of course, the last quarter is a strong quarter, given the seasonal period with Black Friday and Christmas, this is a strong quarter for us, but we grew in commerce by 9% and quarter-over-quarter, moving from BRL 224 million and ending Q4 with BRL 243 million in our commerce operation.

Moving on to BeOnline/SaaS. Fernando touched on the widening of our overall margins and also the margins for our acquired companies. And this is much because of the operational leverage and increase in revenue, which becomes very clear when we look at the gross profit for the company.

This chart shows the performance since Q1 of '22, and we ended the last quarter with gross margin of 53.7% for commerce and 47.7% in the commerce operation. That's a 3.4 percentage point increase overall. So we also saw the overall consolidated result going to BRL 165 million, which contributes to what I'll show you next, which is the adjusted EBITDA for our operations.

So moving on to Slide 13, as I was mentioned, we ended Q4 with BRL 68.3 million in EBITDA, that's a 41.5% increase versus 1 year earlier. And on the right-hand side, the usual breakdown that we have to show you how our acquired companies have performed over time.

So if you look at the yellow curve, the significant leverage becomes very clear. Starting in Q4 2021, we came to minus 12% margin for our acquired companies and increasing by nearly 22% or rather over 22% in these 4 years, coming to 10.2% positive.

It's important to highlight as well that both on organic commerce and BeOnline organic terms, we see levels close to normality at sound levels. But most substantially, leverage is coming from the yellow curve, meaning the expansion in our acquired companies which moved from of 48.3%, going up nearly 7% over the quarter, which significantly contributed to this over 40% increase in the company's consolidated adjusted EBITDA.

Moving on to Slide 14, we have a little bit on some of our cash-generation components, and Fernando touched upon this as well. We have been able to grow at a very sound pace, and there are a few important components to that.

Significantly, one of them is CapEx. The company's CapEx has gone down year after year when -- as a percentage of our net revenue. We saw it at 10.5% in 2021, 8.9% in '22, and we ended 2023 at 7.8%. So naturally, this has significantly contributed to the company's cash generation.

Another important component on Slide 15, which helps us to understand how the company's cash flow works, the companies which provide funding to our operations or financial operations seen as a percentage of our TPV.

Last year, when I mentioned that what we expected was for the company to have something close to 0.8% as its regular level of revenue from receivables as a ratio of TPV was 0.8%, and we remain on that level, reaching 0.75% in Q4, and this obviously significantly contributes to the company's cash generation.

So moving on to Slide #16, that becomes even clearer. Here, we have a snapshot of Q4 and the year at large, when it comes to operational net cash CapEx and free cash flow. So as Fernando said, you can see that in Q4, our cash generation after CapEx was BRL 43.5 [ million ], so 93.8% over the previous quarter and a very strong Q4 contributing nearly BRL 80 [ million ].

And even in the year at large, we saw very significant cash flow, [ 57.4% ] over last year. And I showed you CapEx 2 slides before, and here, we can see the absolute values as well. There's been a relative decrease in continuity in the CapEx, which was at BRL 100 million last year and remain at BRL 100 million this year. So it's a company that's stuck to its strategy of growing sustainably while continuing to keep its cash flow at a [ sound ] level.

Now moving on to Slide 17, I'll talk a little bit about the performance of our acquired companies and how that reflects in our earn-outs. As we mentioned before, Q4 was an important one. Essentially, it determined the vast majority of the sums we have in earn-outs. But going step-by-step, it has significantly shown a positive aspect for us. Our companies have, in general terms, grew.

We saw Melhor Envio growing nearly 40% year-over-year, Bagy growing by 66%. So that shows we have grown our SME operations and with great complementary in the market. And also Bling, which grew by over 43% during this time. But it was not just about growth. Again, I should highlight that our profitability both in terms of EBITDA margin and cash flow, we've done really well.

Our EBITDA margin came to 10.2% with our acquired companies, and we have a few highlights here. This allowed the company to perform really well when it comes to profitability and cash generation, and our acquired companies had a material contribution in that sense.

So a little bit about earn-outs, we have this divided in two slides, Slide 17 and Slide 18, some components of that. And I'll try to detail this as much as I can to make this crystal clear since Q4 essentially concludes the issue or most of the earn-outs issue.

So with the performance in Q4, we had a BRL 76 correction in our earn-outs paid. And this is not a present value. This is the impact on our cash from our earn-outs that should be BRL 756 million.

And one important thing to say is, of these BRL 756 million, BRL 651 million is already definitive. So many of our major operations, Melhor Envio, Bagy and Squid, have the payout some already determined. So we have essentially BRL 100 million of these BRL 756 million, which are still variable based on performance. So this is an important time for us when earn-out is mostly definitive.

So when we look at that from a cash perspective, which is why I'm talking about the cash impact, just to make this clear, the BRL 756 million in nominal terms, we expect to pay BRL 560 million of that in April of '24, that is Q2, with BRL 195 million left to be paid in April 2025, which is why I had said that those EUR 100 million is left from the BRL 756 million.

So part of those BRL 651 million which have already been determined, will not be paid in '24. They will be paid in '25, but the sum has already been set.

Now another two important aspects about our earn-outs. First of all, the accounting impact due to the corrections we had in Q4. And another very important aspect is the fiscal benefit that these paid earn-outs bring to the company.

So first of all, the accounting impact. The snapshot of everything that we have to pay in '24 is already definitive, meaning it's already been recognized in our forecasts in our income statement. So nothing else will be paid over this amount.

And also, for this definitive recognition, Q4 of 2023 includes in its financial expense, which is an important component for the accounting losses for the period, the net impact of the corporate tax of this correction, which was BRL 83.4 million in expense, meaning it had a negative impact on our profit.

And when we recognize the vast majority of that as a definitive sum, means that there is little interest being levied on the future amounts. So the impact in the income statement is about BRL 35 million when considering the amounts payable in 2025, which is a very different snapshot than what we had in 2023, where the bottom line was very much affected by the interest over these payable earn-outs.

Now with regards to the fiscal benefit, this is very interesting. Mostly, technology companies produce great fiscal benefits. Since seeing as many of their acquisitions, many of the payment of their acquisitions turns to goodwill. And in our case, we're talking about a goodwill from this entire crop of acquisitions since our IPO of BRL 2.2 billion. So a material sum from what we paid for these companies is turning into goodwill, that's about BRL 800 million. And I'm talking about cash sum. That's what this BRL 2.2 billion goodwill will provide us as a benefit when it comes to tax payments for the company.

It's important to say that this goodwill is not a set sum. It is estimated for each acquisition, meaning larger companies entail larger goodwills. It's the case for Bling, which was our most highly priced company. And it ceased once the acquired company is incorporated.

So taking Bling as an example, which accounts for much of those BRL 2.2 billion, the goodwill for Bling will be ceased once the company, in this case, Bling; is incorporated by its buyer, in this case, our holding, LWSA.

So in 2024, we began paying those earn-outs. And no longer having contractual obligations as a buyer , we begin to integrate these companies. And consequently, we'll be able to make use of this significant benefit, which is BRL 800 million cash, which will be generated once we begin those integrations.

Now moving on to Slide 19, once we've explained how the earn-outs topic works, this is how the company's net cash flow work.

We ended the year with net cash of just over BRL 1.1 billion. And looking at the company's net cash, what we have is BRL 651 million in definitive earn-outs, with about BRL 110 million in the dark red column, with earn-outs or performance-based earn-outs to be paid in 2024, which is to say most of the payable earn-outs have already been determined, and that's what the BRL 651 million means.

So we have, overall, a net cash of BRL 350 million, already excluding the earn-outs, both those that have already been determined and the performance-based one.

So with that, we move on to our question-and-answer session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Fred Mendes from Bank of America.

[Frederico Mendes, analyst]

I have two questions. The first of them, with regard to the [ Wake ] you just glossed over it, but what could you tell us about this -- how -- what's the operation been like? Is there any significant impact? You mentioned most of that would come in the second half of the year. But anything more you could tell us would be very important.

And also with regard to Tray, you saw the increase between Q3 and Q4, but there is a seasonal impact in Q4, and Q3 had been a bit weaker. So I just wanted to understand whether the entire pricing effect has already been well rounded and whether you see no additional impact on churn. I mean, is there any benefit to reap? Or has all the work been done when it comes to Tray?

[Fernando Biancardi Cirne, executive]

Fred, Fernando here. I will turn over to Ale to talk about Wake, and Willians will talk about Tray. Thank you for your question. They are very important questions. So please, Ale and Willians, take it over.

[Alessandro Gil, executive]

Thank you, Cirne, and thank you, Fred, for your question. Yes, it really is important for us to give you some visibility of what's going on. As you well know, there's a mismatch in our operations between booking and client reception. And we come from a very strong Q3 when it comes to booking.

We were able to attain some very important brands such as [ e-brands ] and all the brands within that group shop together, which should be uploaded in the next few days.

And we have a few other contracts coming into play during this quarter. So the actual result of this that has come with the excellent results from booking is expected to have their effects emerge over the course of the year. That's essentially what we have from that -- from our side. I don't know if you have anything to add, Willians.

[Willians Marques, executive]

That's perfect, Gil. Thank you for your question, Fred. Good morning, everyone. So specifically about the Tray -- the pricing in Tray, in May of last year, we had a substantial change charging the client from marketplace sales. And this was indeed, a very interesting increase in terms of ARPU. And we understand that the impact that we should have has already been affected.

We lost a few clients in the first few months after the change, but that's now all been penciled in. We understand that between Q4 -- Q3 and Q4, that movement has already tailed off. And our results in Q4 have to do with that. When we come to the holiday season and Black Friday, we were able to obtain higher revenue.

But I'd also like to say, Fred, that we are always paying attention to different and new pricing opportunities. More recently, I can give you the example that we changed the pricing of [ Adam ], which is our marketing intelligence product, which leverages the Wake experience product, and we were able to attain an 80% increment in our subscription revenue. So this is obviously not comparable to the platform revenue, but there was an 80% increment there.

So we understand that a change in pricing should take place continuously, and we believe that churn is very much controllable when we change our pricing according to how we believe our clients perceive the value of our tools.

We want to deliver a solution that's fully one step with store, the marketplace, connection, logistics and marketing tools as well. So I'm not going to say there are no opportunities left, but this is something we're always looking at and making adjustments as we go, looking at churn impacts as well as those you all mentioned.

[Operator]

Our next question comes from Leonardo Olmos with UBS.

[Leonardo Olmos, analyst]

Congratulations on this quarter's results. I'd like to talk a little bit more about your revenue growth in '24 and 2025 and what those dynamics would look like.

One thing we really like for these Q4 results was that the GMV versus the revenue from commerce are sort of walking hand in hand, for example, the GMV for own store grew 40% and for platform, 43%. The ecosystem GMV was 18 and for ecosystem, 15.

So I have two questions relating to that. First of all, the relationship between these GMVs, does it make any sense for us to continue looking at them? Because if there's any upturn in the economy, we could see an even higher revenue for Locaweb. So that's my first question.

And also, could we see the ecosystem GMV closer to the ecosystem revenue? There was this gap between 18 and 15. And lastly, the dynamics for BeOnline/SaaS, there was an adjustment last year, and revenue essentially didn't grow. The market usually adjust that or correct that for inflation. Do you believe that will be the course for you guys as well?

[Fernando Biancardi Cirne, executive]

Leo, this is Fernando speaking. Well, we see a very interesting Q4 in terms of GMV. And that's because of Black Friday and Christmas. But we continue to bring a lot by store. So my first point is the acquired companies added a lot of operational margin, and this is something that's come to stay. That's the good news.

And in January, particularly, now talking about Q1 2024, we're seeing a good booking for commerce enablers, which are bringing a lot of new stores in. This should make this relationship you mentioned to remain the same. Now were the economy to pick up, we tend to see a variable or take rate-related side [ thinking ] of.

The subscription side has been relatively more stable because since the economy lost steam, we have been able to bring in many new stores. And the result of that has been there's been more stability and even an increase in Q4 '23. We're seeing very sound, very healthy sales indicators.

What we wanted and which I think is a trend, was for the economy to recover. And once that happens, we tend to see an acceleration on the variable component, which is what we call subscription platform, and also an acceleration on the take rate side.

And if you look at the record, the take rate side has been increasing and should increase over time following our international peers, which involve a larger variable component of the operation. That should be the long-term trend over time.

So I tend to see this with good eyes. I believe that we're building a very robust store ecosystem. And this should allow us to later accelerate our -- the variable side of our revenue. I would say that this is essentially the scenario. I know I didn't answer you very directly, I'm giving you more of a trend-based answer. So we're going toward growing our subscriptions. But over time, that should grow our variable side.

[Leonardo Olmos, analyst]

Yes. I'm sorry for jumping in here. So you would say that once our -- at times when the macroeconomic situation, you have a wider base of subscribers and with the macroeconomic situation going up, you should have a higher rate coming from a take rate. But it's not that you will be charging more on take rate. This is the GMV going up? Or do you -- would you say that is the percentage that will increase?

[Fernando Biancardi Cirne, executive]

Well, you have variable aspects across the infrastructure, such as payment infrastructure and even [ dome ]. So this variable component will allow the variable component of our income to go up, and that's why. And you also have all other avenues for growth such as commercial services, which will also affect the take rate.

And also, for example, Tray, you charge take rate on the marketplace, that's also a variable component. And even Bling. In Bling we have your marketplace franchises. That's another way to charge a variable component. So every part of the system has a variable component, where -- when you have a higher number of transactions, you may charge more. So our ecosystem is becoming more aggressive in terms of when the client sells more that will bring in higher revenue as the client sells more.

[Leonardo Olmos, analyst]

Yes. That was very clear. Just -- you just didn't talk about the SaaS -- the BeOnline/SaaS side.

[Fernando Biancardi Cirne, executive]

Yes. That's good for [indiscernible].

[Unknown Executive]

Thank you. That will allow me to talk a little bit more about the segment and revenue at large. You talked about the inflation proxy for this market. That's not a bad one when you look at the long term, but it's also not perfect when you look at the very short term.

For example, quarter-over-quarter, there might be variations -- one-off variations. And that's because -- well, if you compare, for example, our operations with that of our American peers, you will see that this market, even in the United States, is not growing. We're growing very, very little.

So this correlation with inflation is good when you look in a long-term horizon. What happens in this market is at times when the demand is weaker, the market sort of fights for higher sum, which reflects on higher selling costs.

Our purpose with this business -- being very straightforward, and this is something I've been repeating over and over again, our purpose is to make this a cash-generating profitable business. So we will not go into pricing wars because we believe that in the consolidated market, this is a hurtful practice.

So our purpose is to continue to generate cash and continue to improve the margins of this operation over time. And maybe in a quarter when the struggle becomes fiercer and you need to increase sales revenues, we decide not to join the fight. So I might tell you on one or another quarter that the growth was under -- or underperformed inflation, and we understand that, that's okay. So the American standard is actually less growth than what we have in Brazil. So our benchmark is still the same.

We continue to believe that this is a consolidated market, but that we're actually even outperforming than -- outperforming our American peers over the last few years. I don't know if I was able to answer your question, but this is what we had.

[Leonardo Olmos, analyst]

Yes. I understood. So you may underperform 1 quarter or another, and you're prioritizing your margins. That's perfect.

[Operator]

Our next question comes from Froylan Mendez with JPMorgan.

[Fernando Froylan Mendez Solther, analyst]

Could you give us a few details about the components that helped you in your organic margins for e-commerce during this quarter and also the current levels of your organic margins?

And on the other hand, with Squid, I'd like to understand a little bit more about the changes that have occurred, what clients are you focusing on? And what clients have you excluded? And what's the level -- the sustainable level for your margins for Squid you believe? And does that relate to the size that you expect this business to acquire?

[Fernando Biancardi Cirne, executive]

Thank you. I will answer the first part of your question, this is Cirne speaking, and then I'll turn it over to Ale. Well, we've enjoyed a very steady e-commerce margin. We saw a dip at the end of last year, we were able to recover. And that was because of the increase in costs in the payment company side, but we were able to recover very significantly during this quarter, especially because of our operational leverage and the costs of the operation.

And on the cost side, that's essentially because of the payment side really. So obviously, this is a very helpful quarter because of Black Friday and Christmas, but this has been sustainable growth. We believe that this is a level of growth that can be sustained throughout the year and even increased over 2024.

And I even told our investors during this quarter, we already expected to recover part of that decrease with cost savings/operational improvements. And I think that's coming essentially from the payment side, the platform side, we're talking about Tray, essentially. Growth should be slow there because we -- our sales are doing good, but growing our leverage takes time, but it should also come as well, but it's mostly because of our leverage on the payment side.

Now I'll turn it over to Ale, who will be talking about the work that we've been doing on Squid. And we've already contributed significantly there for our organic margin, but this will continue over the next few months.

[Alessandro Gil, executive]

Thank you, Cirne. Thank you, Mendez, for your question. So Squid works on several components in that sense. First of them, there's not necessarily a slowdown, but rather a change in our commercial model for part of our clients.

Before, we used to internalize the revenue from influencers, and now for a few customers, we're working with a mediation model. So the company is still growing as a business, but these steps help us to grow our margins. So in a way, our profitability is higher now.

On another note, since the end of last year, we are now proposing a new organization for the company. We changed our internal flows slightly. We had an executive from Google called [ Julie ] Fonseca. Together with the rest of the team, we've been doing great work to accelerate our sales and improve our organization and improve our flows because we believed and still believe that they can be ceased and made good use of.

Looking at the longer term, we've invested heavily on optimizing our e-commerce platform. And that's sort of the great part within Locaweb. We are already seeing some results on Locaweb, and we're exploring that. This should really improve the commerce side.

[Operator]

Our next question comes from Cristian Faria with Itau BBA.

[Cristian Faria, analyst]

I just wanted to understand something. On your release, you talked a little bit about a few integration initiatives that would even justify the recovery in your gross margin, some cross-selling and process optimizations. So I just wanted to understand that a little bit better, understand what you're doing and also try to equate that with what you said about integrating that with your M&A.

Do you expect your M&A strategy to accelerate, moving forward? What could you tell us with regard to your strategy in those integrations? And how can we expect that to affect your margins?

[Rafael Chamas Alves, executive]

Cristian, this is Rafael. So about the integration process, Rafael showed you a chart with the simplification. And I think the most important one was to simplify not only internally, but also start rethinking the company's structure to increase our focus on the clients' operations. And that involved operational mergers and also changes in the structure of our operations on Wake.

We saw the merger of nearly 7 companies. And when I say merger, that's a complete merger. So the extinguishing of prior brands integration of systems, we have several different systems. And when you integrate the companies, you integrate their systems, you start working on communication and sales systems in an integrated way.

So again, looking at Wake, the Wake's example, which I think is one that's been well established, all 7 operations are now served by the same commercial team, the same sales pitch. So when we talk about integration, that goes way beyond simply thinking of a product. We're talking about rethinking the company's entire infrastructure. Cassius, who joined us recently, has also helped us to rethink our entire way to serve our financial customers.

Back when Cassius joined us, we had one credit operations, one payment operation, one thinking of banking as a service with the digital account. And we were always thinking about our product as opposed to think about the clients' needs. So Carlos joins us, we begin to rethink all of those products with a single purpose, which is to help our clients with their financial needs. So this was the first chapter in a long history of changes.

And it's important to remember that a very important person also joined us in the meantime, [ Ottavio Dantes ]. [ Ottavio ] worked in consulting for a long time, and he came in to help us in this process of unlocking value growth, thinking about the customer journey. As I said, we want to be better equipped to streamline our processes and bring better profitability, thinking about that simplification.

So these are a few of the initiatives, Cristian, but it's important to say that these are not -- these are dynamic. We want to really rethink our entire portfolio with a focus on our clients and their journey. That's critical for us to continue to evolve.

[Operator]

[Operator Instructions] Well, with no further questions, we now conclude the question-and-answer session, and I turn the conference back to Mr. Fernando Cirne for his final remarks.

[Fernando Biancardi Cirne, executive]

Well, I'd like to thank everyone who joined our call and all analysts who ask their questions. I believe that they really help to clarify questions that were in the air, and also helped -- also thank everyone who helped us to achieve these results.

We had some very important achievements in Q4, when it comes to our margins, when it comes to growth, which is really healthy. We have some important challenges for this year, but the company is definitely on the right path and poised to start growing again.

We have achieved very interesting margins. And more importantly, our cash generation has been substantial for our shareholders. So thank you all very much, and until we meet again in our earnings conference for Q1 2024. Thank you.

[Operator]

LWSA's Q4 2023 Earnings Conference has now concluded. We'd like to thank you for joining us and wish you a great day.