Earnings Call: Q2 2024

Aug 9, 2024

Summary

Q2 delivered record EBITDA, 21% consolidated revenue growth, and higher Shopping Brazil take rates, with costs controlled. Picodi remained a drag, including a non-cash BRL 82.8 million impairment; a BRL 220 million capital reduction was planned for September.

Good morning, everyone, and thank you for attending another Méliuz call. We are about to start Méliuz second quarter 2024 results webcast. Our conference call is being simultaneously translated into English. For those who wish to change the language, simply click on the interpretation button at the bottom of the screen. My name is Fernanda. I am part of the IR team, and I am joined by Márcio Penna, Director of Investor Relations and Corporate Governance, and Gabriel Loures, Growth Strategy and New Business Director. This event is being recorded, and we will publish it together with its transcript on our IR website. The material is already available on our website under the tab and on the CVM portal. After the presentation, we will go on to the question and answer session. For those who wish to pose a question, just click on the raise your hand button at the bottom of the screen, and I will make the announcement. I wish everybody a good call, and I am turning the floor over to Márcio. Well, thank you, Fernanda. Good morning, everyone, and thank you for joining our earnings call for the second quarter of 2024. It is a pleasure to be here representing our board of director and all of Méliuz employees. We are very pleased with the company's operating performance in the second quarter of the year. We were able to deliver a better result than the first quarter of the year, achieving a record EBITDA for the quarter as well as for the semester. Two of our main objectives for the year are very clear to the market, the optimization of margins and core business growth. The growth of EBIT and margins have been occurring steadily and sustainably over the last few quarters. However, this was the first quarter that in addition to improving EBITDA, we managed to deliver robust growth in our revenue. We are fulfilling our goal of aligning profitability and growth. Our costs and expenses remain under control, and we continue to generate cash at Méliuz from a bid and Melhor Plano. We announced a capital reduction of BRL 220 million, the second in the year. Since in April, we distributed BRL 210 million to our shareholders. We remain committed to the best allocation of capital and value creation for our shareholders. I cannot help but comment on Picodi in a very transparent way. Unfortunately, the operation is below expectations. Every quarter, we have reported a drop in traffic, which has had a negative impact on the results of the coupon and cashback operations. We do not have a satisfactory CAC and lifetime value, satisfactory ratio. Based on operating and financial projection assumptions, we carried out an asset recoverability test and found an impairment amounting to BRL 82.8 million. This effect does not impact the company's cash flow, but it did have an impact on our results. From the practical point of view, we have a contract in place where the minority shareholders are responsible for operating the asset until the final earn-out date. We continue to believe in the asset's potential, but we are aware that we need to improve the progress of the operation. Despite Picodi's results, we are very confident that we will be able to meet the objective set forth for 2024. Having said that, let us go into the details of our results for the quarter. As you can observe, and I have already mentioned this, we had a record EBITDA for the second quarter of the year that was better than the previous quarter, which is common, of course, because of the seasonality of the period and better than the same period in 2023. Besides delivering an excellent EBITDA margin, we also had a revenue growth, which is very important because of our focus for the second half of the year. We had a 16% improvement in net revenue of Shopping Brazil compared to the second quarter 2023. When we speak of consolidated revenues, our results were even better. We had an improvement of 21% between the periods. You can change the slide, Fe. When we speak about EBITDA and LTM, the last 12 months, this vision is ever more clear when you see the improvement of performance. If we take away the seasonal issues, we have been delivering an ever better EBITDA. In the last 12 months, adjusted EBITDA reached BRL 52.6 million, an improvement of 141% vis-à-vis the previous year. The adjusted EBITDA in the consolidated figures also had considerable improvement, improving 141% vis-à-vis the same period in 2023. Now our focus in the control of costs and expenses continues on. We are highly aligned with this focus in costs and expenses. To the right, when you look at the LTM graph that excludes seasonality, it's impressive to observe that in one year we had a reduction of one quarter of costs and expenses. We go from BRL 390 million in the second quarter of 2023 to BRL 312 million now in the last 12 months in this period of 2024. We reduce almost a full quarter when it comes to costs and expenses in only one year, which of course has aided and abetted the performance of our results and performance of brands. This impact on EBITDA also has an impact on the net results of the company. If we take away PCOD showing you adjusted EBITDA. In the last period, we had BRL 22 million with an adjusted net margin of 25.1%, two percentage points against the previous quarter. In terms of cash, we paid out BRL 210 million in April. As you are aware, we paid an earn-out for acquired companies of BRL 33.9 million. We had a good financial result, increasing cash by BRL 10 million, and what is more important, we generated cash in the company's BRL 5.4 million. We ended the quarter with a very strong cash position of BRL 451.4 million. Yesterday, we issued a material fact to speak about the capital reduction, and in September we will have a new reduction of BRL 220 million. At the end of the year, we will have BRL 231.4 million. To speak about this capital reduction, the first was BRL 200 million in April. Now we have BRL 220 million on September 2nd. Shareholders from Méliuz will have a payment on the 13th, which is the date we have set forth to pay BRL 2.53 per share. Beginning on September 3rd, one day after the cut-off date, the Méliuz shares will be negotiated without the BRL 0.53 value. I will now give the floor to Gabriel to give you further details on the operation. Thank you, Márcio, and a good day to all of you. I will refer to our operating results. As Márcio mentioned, we had strong results in Shopping Brazil. We had a strengthening of take rate, an increase in the number of buyers, and also improvements in our business. If we look at the figures, we have a GMV for the quarter aligned with last year, reaching BRL 1.091 billion of GMV. A take rate that is very strong and growing, going from 6.1% to 6.9% year-on-year with a growth of 13%. This impacted the growth of revenue, where we went from BRL 52.6 million to BRL 61.3 million, a growth of 16%. What is important is that we did all of this maintaining the gross margins and profitability of the business. If you look at the take rate, we went from 2.3% net take rate in the second quarter of 2023, reaching a net take rate of 2.4% this quarter and a growth in the margin of 26%, highly relevant for this half of the year. Which are the drivers that allowed us to do this? We have worked arduously to guarantee large volumes and novelties in the campaigns for our partners. We created new novelties. We allow our users to get cashback, and this has helped us leverage the take rate for the period. As an example, for the first time this quarter, we had a campaign focused on the users of Prime from Méliuz. These are the most active and engaged users, and they were able to find the best promotions. We have held other campaigns creating new opportunities for our partners to invest and to enhance our take rate. As a second driver, we have grown in new categories and segments. We are working strongly hand in hand with the industry, allowing it to use our channels online. We work with them so they can sell more to our partners. And we have Méliuz Nota Fiscal working with the industry and working with brick-and-mortar sales point. So we are growing with the industry to grow our sales and with other categories where we had an under-penetration historically. This helps our take rate as well as boosting our revenues. The third driver is the maintenance of growth. This is very important and continues to positively impact our revenue and margins. This is due to the new products and the new growth. We have Méliuz Prime, with a recurrent subscription from users, and incremental sales where users buy more, and they have options to gain benefits in new stores. All of this done jointly with Méliuz Nota Fiscal. All of this helps us in the growth of net revenue. And the last driver, you can see on the page, a growth of 21%, and that focus work on growing the number of users has not made us lose profitability, and marketing and other areas require to be very positive in the period. As I mentioned, significant growth of our margin in Shopping Brazil of 26%, as mentioned before. Let's speak about our financial services vertical. We continue to grow the partnership with Banco BV, complying with our objective of offering financial benefits embarked or embedded in the app. This allows us to obtain better revenues from new users, from ourselves, and from Banco BV. We had a growth of 39% in the base, accrued growth. It went beyond the level of 2 million accounts opened in the second quarter, and we have 136,000 credit cards issued with a growth of 52% of the base vis-à-vis the first quarter 2024. The net revenue for financial services reached BRL 14.7 million, a growth of 62%, and a slight drop compared to the first quarter of 2024 because of a one-off thing we had in the first quarter of eliminating some users in the app. What is relevant in the revenue and the number of credit cards opened is the possibility of further engaging a customer base, which is already the most engaged users. They use current account, they use Nota Fiscal, and it's a possibility of further engaging these customers, and it will enable us to use other financial products and services to further this. The first example is that Cofrinho that we're going to launch. We're still in a pilot phase. It's an investment product that will allow users to make more with returns by using Méliuz. All of this is embedded in the user's purchasing journey. For example, they can buy traveling or trips directly from app, and of course they will receive cashback for purchasing online. The idea is to create a journey that will be embedded in the customer's journey. This will lead to greater engagement in the use of the account, in the use of Méliuz Shopping. This will directly and indirectly increment our revenues, and of course, will lead to cross-selling with other products in the Méliuz ecosystem. We're very enthusiastic with this, and it will be rolled out throughout the month of September and will be available for full use in the fourth quarter of 2024. We remain on track with all of our broad objectives for 2024. We have remarked on this recurrently. We have four broad pillars. First, the growth of Shopping Brazil. We delivered this quarter, increasing their revenue, making more profitable verticals. We have healthy take rate for the business. We have been able to innovate with the growth of Nota Fiscal, with the growth of Méliuz Prime. We have created new products to further engage the base and have generated more revenue for ourselves and our partners. The ramp-up of financial services along with Banco BV, we are at a good moment, accelerating offers, creating new products, engaging users, and finally, maintaining our operational efficiency. Maintaining discipline in cost control, cashback costs of users when we carry out online sales, but also work with our suppliers and payroll. We want to maintain that operational efficiency as it will enable us to grow. This is the message we wanted to convey to you, and throughout 2024, we will be focusing strongly on these four pillars. Thank you very much. We are now open for questions and answers. Thank you, Gabriel. We will now begin the Q&A session. Should you wish to pose a question, please click on the raise hand icon. The first question is from Ricardo from BTG Pactual. You may proceed with your question, Ricardo. Good morning, everybody. Thank you for taking my question. I have three questions. The company today has an adjusted EBITDA margin of 15% or 17%. Is this a recurrent level in the short term? Have you had lower expenses this quarter? Did you have a higher increase in take rate? Simply to clarify this, you spoke about the number of buyers and their Shopping Brazil vertical with a growth of 16% in the first half of the year. Is this because of a lower frequency, a higher mix in purchases, and lower tickets? Will it remain flat? You have been attracting more buyers, and which is the company's strategy to effectively increase the growth of GMV, especially in this more competitive market? Is it possible to maintain the EBITDA margin at 17% with all of this? The last question. We have observed that several banks have increased their risk appetite. They're growing more in the field of credit cards, and I would like to understand how you're changing your approval levels for cards with Banco BV, and if this will increase in the second half of this year. Thank you for the question, Ricardo. To answer the first question, there's nothing one-off in the results we presented this half of the year. We have been working arduously to maintain growing and robust take rates, growing revenue, and controlling costs. Of course, there is seasonality, specific e-commerce campaigns, and different moments for our partners that could have an impact. We don't have a one-off effect that couldn't repeat itself going forward, but we try to control opportunities so partners will always benefit. Your second question was about credit cards? No, it was about the growth of GMV. Very good. If you can consider that and maintain your margins at this level, that's our goal, to maintain GMV, keeping our base robust, and we have done this in a diversity of ways. There is no silver bullet. We work with the web to ensure that people buy ever more, ensuring they have a good experience in their first purchase. We offer them cashback, and we have worked strongly to guarantee this. We also have good retention, and this enables us to grow the GMV figures. You said that GMV remained flat. Well, this depends on the categories that users are purchasing. We also have that profile in e-commerce, and they have an impact on the GMV commission ratio, but we're working to increase both of them. Your third question regarding to capital. We're working in a very realistic fashion with Banco BV, who is responsible for credit policy. We're growing the base of credit cards that we issue so that it will be sustainable in the long term. We believe that this will continue. Well, thank you. Thank you very much. Our next question comes from Alexandre from Morgan Stanley. You may proceed, Alexandre. Good morning, everybody, and thank you for taking my question. Congratulations for the results. We have three questions at our end. The first relates to those results, specifically on slide 8. You showed us two slides, the GMV and new buyers. GMV with a drop of 1%, but we also see new buyers growing 25%. I would like to understand that dynamic of GMV per buyer. Is there a drop as a comparison? Is there a different effect here? The second question refers to your outlook. We have seen the GMV dropping, and given the context of the e-commerce industry we observe, I think this explains both of these movements. If we look at the second half of 2024 and 2025, how do you foresee the growth of the industry as a whole? A third point referring to Picodi. We have observed that you announced the impairment of the operation, and in the release, you mentioned that the operation is the only one that is burning cash in the company. Which is your mindset in terms of the Picodi operation going forward? Which are your plans that you would like to put in place? Thank you. Thank you. I will answer the first two questions, and Márcio Penna will refer to Picodi. Regarding the first question of GMV and new buyers, GMV remaining flat. Our result in GMV and revenue is the result of all of the harvest we have been accruing since 2011. Most of our revenues come from users we have from the past because we have very good retention. Year after year, the users we acquired one year or two years ago end up buying ever more. The new buyers have grown significantly with this, which is excellent news. We can guarantee sustainably the growth of GMV and revenues, but this is for the long term as all of our harvests become more mature. This answers the first question. Looking at your outlook for 2025 and the industry, of course, we're in the e-commerce business. There has been a recovery of e-commerce this year vis-à-vis last year, and we hope these results will be maintained and that the e-commerce will once again grow. Our business has created several tools to be able to continue growing and to improve results for our shareholders pegged to the results of e-commerce. But of course, we do want to grow revenue through our products, working in the offline world where we did not work before, working with subscriptions in Méliuz Prime, with financial services, credit cards. These are mechanisms to unpeg ourselves from the e-commerce market and to increase the revenues of our core business more. Thank you. Alexandre, regarding Picodi, it's important to mention that although our stake is 51.2%, the rest is represented by minority shareholders. We participate in periodic meetings, we analyze the figures, we offer strategies, and we help with our cashback strategy. This strategy will remain until the end of the earn-out. Our expectation for the end of the year is that we will act along with Picodi to try to recover the operation. Nothing different from that. Thank you. Thank you very much. Thank you, Alexandre. At this point, we would like to end the question and answer session. I will return the floor to Márcio Penna for his closing remark. Once again, I would like to thank all of you for your attention. We're going into an important part of the year, which is the third quarter. We're preparing for Black Friday, and we're convinced of the results of the second half of the year. They will be as positive as the first half of the year. I hope to see you all at the call in November. Thank you very much. And the conference call for the second quarter