Earnings Call: Q3 2024

Nov 13, 2024

Summary

GMV rose 36% YoY and net revenue grew 24%, with recurring EBITDA positive at BRL 4.5 million and cash generation of BRL 982,000. Management targets double-digit EBITDA and continued positive cash flow while advancing franchise expansion.

Good morning, ladies and gentlemen. Welcome to Enjoei's conference call to discuss results regarding the third quarter of 2024. This video conference is being recorded, and the replay can be accessed on the company's investor relations website. The presentation is also available for download. We would like to inform that the participants attending the conference call will be in listen-only mode during the presentation. We will then open the Q&A session when further instructions will be provided. Before proceeding, we would like to clarify that any forward-looking statements made during this conference call regarding Enjoei's business prospects, financial, operational projections, and goals constitute beliefs and assumptions of the company's management, as well as information currently available to Enjoei. Forward-looking statements are no guarantee of performance as they involve risks, uncertainties, and assumptions, since they depend on circumstances that may or may not occur. Present here at this conference are Ana Luiza McLaren, Chairman of the Board of Directors, Tiê Lima, CEO, Iuri Lima Ribeiro, Director of Growth, Joel Queiroz, Director of Operations, and Guilherme Soares Almeida, CFO and IRO. I would now like to turn the call over to Tiê Lima, who will start the presentation. You may proceed, Tiê. Hello, everyone. Good morning. I am very pleased to report the results for the third quarter of 2024 as a period that marks the beginning of a new cycle for our company, highlighting positive cash generation. This result reflects the combination of consistent growth of our platforms, significant advances in profitability, and the development of new business avenues. Total GMV increased by 36% year-over-year, reaching BRL 418 million in the third quarter of 2024. This growth reflects the strength of our platforms, and we want to highlight some key drivers for each of them. Elo7, for example, posted a robust performance, growing 8% when compared to the previous quarter. This advance is the result of product improvements implemented over the period, which resulted in a better experience for our users, resulting in increased sales conversion. The Enjoei platform recorded a growth of 26% year-on-year and managed to maintain stability in the quarterly comparison. Given the strong performance in the second quarter, we see this as a remarkable achievement in what is typically a more challenging period. We also had sequential advances in gross margin, reaching a historic high of 57.2% and celebrating a positive EBITDA of BRL 4.2 million, which validates our ability to execute a strategy based on value generation. Another highlight was the accelerated pace of expansion of the Cresci e Perdi stores. At the end of the third quarter, the chain already had 487 active stores, and the financial metrics showed impressive performance with a 35% growth in net revenue compared to the second quarter, totaling BRL 20.3 million and an EBITDA margin of 78.5%. This robust performance allowed us to recognize an equity accounting of BRL 2.9 million in the period, referring to our 25% stake in the company. In addition to receiving BRL 1.6 million in dividends related to royalty results of the second quarter of 2024. Now I would like to invite Iuri to provide details of some product improvements captured in the quarter from the investments we continue to make in technology. Thank you, Tiê. Good morning, everyone. Throughout the third quarter, we made significant progress in indicators of recurrence, turnover, engagement, and sales conversion through strategic investments in product and technology. Among the promising initiatives, I would like to highlight the Créditos Bate-volta, a program still in the final rollout phase, but which already shows great potential. It offers the buyer a percentage back of the amount spent to be used on the platform, encouraging a future purchase. This mechanism is mainly aimed at users at the beginning of their journey, allowing them to create a connection with the platform on a more recurring basis. The project's first results demonstrate relevant impacts with a 6.7% increase in the number of transactions per user of the groups that received the benefit without impacting the total level of investment in commercial incentives. Another important advance was the evolution of the personalized journey implemented on the Enjoei platform. This feature uses users' interest history to deliver highly relevant content, which has resulted in a significant 80% increase in the rate of engagement with the home components of our website. This data reinforces the positive impact of a more personalized approach and is an incentive for us to continue improving the user experience. I would also like to mention the excellent result achieved in the Elo7 platform. Between May and September 2024, our checkout process improvements drove a significant increase in conversion with the 28% gains in GMV generated by each cart created on the platform. These achievements are essential steps toward consolidating our relationship with users and creating an environment that promotes frequent and lasting interactions. We are confident that these efforts will lead us to even more expressive results in the coming periods. I would now like to hand over to Joel, who will comment on the progress of our operations on the offline channel. Thank you, Judith. Good morning, everyone. We continue consolidating our operations on the offline channel throughout the third quarter of 2024, with the opening of our third physical store located in one of the busiest areas of São Paulo, on Street Frei Caneca. With this inauguration, we concluded the initial plan of three pilot units, which allows us to test and improve the operation model and then launch the next step, entering the franchise market. Future Enjoei franchises will have a robust technological structure anchored in data and intelligence of the Enjoei platform. This digital base brings competitive advantages to each unit, offering systems that support the choice of the ideal location, inventory negotiation, and detailed analysis to help our franchisees to make strategic decisions. Furthermore, the technological support will be combined with the strength of our brand, which is already highly recognized in the online environment. This digital presence, combined with the structure and support offered, will give us the potential to convert our online users to the physical channel, expanding Enjoei's reach and strengthening the relationship with our customers. The first 180 days of operations have already delivered very promising results. During this ramp-up period, we achieved the necessary indicators to expand the operation. Both monthly revenue, markup, and inventory turnover reached a point that gives us confidence for the expansion plan, providing attractive returns and payback to our franchisees. Furthermore, 60% of the store sellers have already transacted on the Enjoei platform, while 40% of the purchasing customers have already purchased on our online channel. This demonstrates the potential of the multi-channel strategy to boost sales. I would like to take the opportunity to thank the entire Enjoei team dedicated to the offline channel, who contributed and continue to contribute to this important moment of expansion and innovation for the company. I'll now pass it on to Guilherme, who will comment on the progress of our financial results. Thank you, Joel. Good morning, everyone. We are proud to share the delivery of yet another quarter of strong financial results, combining positive EBITDA and cash generation. Among the highlights, we can mention the 24% growth in net revenue compared to the previous year, reaching BRL 68.1 million. At the same time, the cost of services provided, which has consistently become more efficient over the past three years, fell to 42.8% of the net revenue. In addition to the management of suppliers and contracts, this reduction demonstrates the positive impact of the consolidation of Elo7 operation and the achievement of economies of scales of logistics and technology costs by incorporating this substantial volume of transactions into the Enjoei group. As a result, we have seen growth in our gross margin, which increased from 49.6% in 2023 to 57.2% this quarter. Another point to highlight is the drop in general administrative expenses, which fell 33% compared to the previous year, reflecting our commitment to sustainable management. Today, our expenses represent only 32% of net revenue, compared to 59% of the previous year. With this, we ended the third quarter with a positive recurring EBITDA of BRL 4.5 million and an accounting EBITDA of BRL 4.2 million. This operational improvement was also observed in cash dynamics, which reached a positive level of BRL 982,000 in this quarter. We are inaugurating a new cycle. This quarter, operating results exceeded platform investments, demonstrating our commitment to efficient resource allocation and long-term value creation enabled by intense governance efforts. I reiterated that the management of investment efficiency indicators is part of our routine. We are constantly observing metrics such as LTV and CAC of our users, as well as NPV and the ROIC of the CapEx invested in the development of new features for the Enjoei and Elo7 platforms. This provides us with confidence in our decisions, which, combined with the proven execution capabilities, assures us that we will continue on this positive trajectory. I could not conclude in any other way than addressing our team, which always show up in large numbers for our earnings results calls. This quarter's result is important. It's a milestone in our trajectory, and it's a consequence of the work that all of you have done. Let's celebrate our achievements and take pride in what we are building here. I'll give back the floor back to Tiê for his final remarks. Thank you, Guilherme. I would like to end the presentation by reinforcing that this third quarter was a period of significant achievements and that it demonstrates the ability to execute a consistent growth and expansion plan while ensuring robust results in a trajectory aimed at generating value for our shareholders, customers, and stakeholders. Thank you all for the support and trust in our journey. We are now available for the question and answer session. We are now going to begin the Q&A session for investors and analysts. If you wish to ask a question, please enter your name and company in the Q&A field or use the raise hand button. Our first question comes from Larissa Sommer from XP. You may proceed, ma'am. Good morning, everyone. First of all, congratulations on the results. On our side, we have two questions. The first one is related to EBITDA. You said that you have positive perspectives for the continuation of the profitability levels. I would like to understand if the EBITDA is something structural. Can we consider it to repeat down the road? The second question is the expansion by franchise of the physical stores. Could you provide more information about the negotiations? In the release, you mentioned the opening of stores for 2025, so could you provide more color on the interest of the franchisees? Everything would be very useful for us to understand the operation, and congratulations again on the results. Hello, Larissa. How are you? Thank you very much for the question. This is Dia speaking. The first question is related to EBITDA. I see this as structural. We reached an EBITDA that is free from any one-off effect. That means that it's a recurring EBITDA, in fact. As we have said, the way we see it to the future, we see that there will be evolution down the road. There is room for growth for next year, and we also see room for reduction of expenses and adjustments of the projects. We have opportunities in the payment, logistics, and also in operation. As we see it, this EBITDA will reach two digits. So this is our goal. As we say, we are going to go one line at a time, gross profit, EBITDA, and now we are going to talk about the profit of the company as a whole and generating value. When we look at this direction, we see that a two-digit EBIT is a goal that we have in the medium term. So this is something that you can keep in your mind. When we talk about franchise, we see that we are developing a very good business for the franchisee. In the meetings that we held, we saw that this is an investment option, which is very attractive, and the conversations are getting even better after we launched the third physical store, according to the plan. The third store has been in operation for some months, and this has helped us to look at different aspects, such as the location and the sizes of the store, so we can solve the questions that the franchisees might have. So we have a curve in the pipeline, and that we are going to consider. I'm not going to say how everything is as a whole, but what I can say is that the business is very promising and the feedback has been very positive. We are very enthusiastic, and this is part of our strategy, the long-term strategy as a whole. That's very clear. Thank you very much. Congratulations again. Our next question comes from João Valadares with Arbor Capital. He says, "Good morning. Could you provide more details about the high growth of revenues from Cresci e Perdi?" João, how are you? The growth in revenue of Cresci e Perdi came from the expansion movement, which has been more intensified in the last period. We executed many contracts, and this is the direction we have taken in terms of revenue growth of Cresci e Perdi. Our next question comes from Leonardo Otero with Arbor Capital. He says, "Congratulations on the results. Can we expect cash flow after positive investment in all quarters as of today? Could you make some comments on the expectations of EBITDA and free cash flow for the fourth quarter of 2024, as well as for the year of 2025?" We can understand that this movement, as I mentioned before, we are after an EBITDA close to two digits or with two digits, and we can understand that this is going to generate a constant cash flow. As we get close to the indicator, this is how we see the business. Cash flow is going to be maintained recurrently at a positive level. There may be seasonal events that may affect from an unfavorable effect, but we see this in a positive trend. Yes, we do. Our next question also comes from Leonardo Otero, and he says, "About physical stores of Enjoei, what's the gross margin and EBITDA of the stores in operation, and what sustains the confidence of the company to reach 300 units up to 2027? How many stores have already been in contract up to the moment?" Can you hear me now? Hi, Leo. How are you? What makes us confident is the information that we have about the operations of the physical store, the markup level that we reported when we see the sales conversion into revenues to the franchisee. This is what provides us with the confidence. We are not breaking down the numbers as a result of strategies, markup, operational margin. But in the meetings that we hold, we have seen that the market is welcoming those initiatives. When I see the number of stores, we can see this estimate of 300 stores because we have a network that continues to evolve. We open more stores. We are close to 500 active stores nowadays, and there are other players that surpassed 100 stores. There's no reason why we wouldn't consider this to be a feasible number to be after. How do we see the execution of contracts? We see a cycle of sale that will, after 120 days, we see that there are some stores that are close to 120 days of negotiations. And we started to do this effort with more intensity, with more strength after we opened the third store, and it ran for another month. That's why we are in the search for the index. This is the period that we believe that we are going to execute the contracts that we are negotiating. I'm very confident that we are going to have many Enjoei stores open. Our next question also comes from Leonardo Otero. He says, "Could you provide more details about the high growth of Cresci e Perdi? What's the percentage growth in comparison to the third quarter of 2023, and what's the percentage of royalties considering the total revenue?" The question is very similar to the previous question. The growth is associated with the royalties, and this is something which is going to be extended considering the next payment. Considering that we have the percentage according to the royalties, we do not disclose the number. This is what explains the difference quarter-on-quarter that you asked. Our next question comes from Frederico Vontobel. He says, "Congratulations on the controls, results, and especially on the cash generation in the midst of investments. What is the process of choosing franchisees, and how is this going to impact the future results of the company?" Good morning. This is a very interesting question. We have a strategy to go after experienced franchisees in the market. We are focusing our conversation on multi-franchisees because we believe they can speed up our operations considering the experience they already have in the segment. Looking to the future, we believe that this strategy will enable welcoming other franchisees which are not in this profile. First of all, we are going to look at entrepreneurs who have more than one franchise, and then we are going to go after investors who do not operate in the business. The initial focus is on multi-franchises. Our next question comes from Vinicius Escobar. He says, "Good morning. Could you please comment on the objective of the cash for the next year, especially considering the positive cash flow?" We want to keep the cash flow at the levels it is now. We do not want any significant variation. We want to maintain the cash level the way it is. Again, we might have an addition to the cash level along the period. We are likely to have a stabilized cash flow at the level it is now. We would like to remind you that if you wish to ask a question, enter your name and company in the Q&A field, or you can use the raise hand button. Please wait while we collect questions. The Q&A session is over. We would like to give the floor back to Tiê Lima for his final remarks. Thank you very much, everyone, for attending this call. I like to see how our strategy has been successful. We see there is a number of initiatives, physical stores, categories, and we see a constant growth with value generation. When I look at the company since the IPO, we can see that it has been evolving constantly. This is a result from the work our team has done, and we want to be one of the major companies in the sector where we operate. We are going to go after this objective every day. Thank you very much, and hope to see you in the next calls. Enjoei's conference call has been completed. We thank everyone for their participation and wish you a great