Earnings Call: Q4 2023

Mar 14, 2024

Summary

Q4 revenue rose 86% YoY and adjusted EBITDA reached BRL 3.1m positive as margins improved. Elo7 and Cresci e Perdi expanded the portfolio, while 2024 plans center on pricing, logistics efficiencies and physical-store growth.

Good morning, ladies and gentlemen. Welcome to Enjoei's conference for the discussion of the results of the fourth quarter of 2023. This video conference is being recorded, and replay can be accessed on the company's investor relations website. The presentation is also available for download. Please be advised that all participants will only be watching the video conference during the presentation, and then we will start the Q&A session when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference regarding Enjoei's business prospects, projections, operational and financial goals, constitute beliefs and assumptions of the company's management, as well as information currently available to Enjoei. Future considerations are not a guarantee of performance and involve risks, uncertainties, and assumptions as they refer to future events, and therefore, depend on circumstances that may or not occur. Investors and analysts should understand that general conditions, industry conditions, and other operating factors may affect Enjoei's future results and may lead to results that differ materially from those expressed in such future conditions. In this teleconference, we have Ana Luiza McLaren, Chairman of the Board of Directors, Tiê Lima, CEO, and Guilherme Almeida, CFO and DRI. I would now like to give the floor to Tiê Lima, who will start the presentation. Please, Tiê, go ahead. Hello, everyone. Good morning. As we close 2023, we are immensely proud of our achievements. We have successfully complied with efficiency-based planning for the year while expanding our community. New avenues are opened with the announcement of two acquisitions, Elo7 and Cresci e Perdi, advancing our presence in the physical world and expanding categories. Enjoei ended the year with an impressive 86% increase in net revenue, growing from BRL 34 million in the last quarter of 2022 to BRL 64 million in the last quarter of 2023. Furthermore, our profitability indicators have evolved positively with an increase of 4.4 percentage points in our net take rate, gross revenue per GMV. In gross margin, an evolution of 15 percentage points, reaching 52.4% in the last quarter of 2023. Gross profit showed a strong growth of 99% year-over-year, which allows us to continue advancing in the dilution of expenses. The combination of these results have phased our trajectory of sequential EBITDA improvement and cash dynamics in this period. We ended the year with a net position of BRL 282 million. Adjusted for non-recurring expenses, presented a positive level of BRL 3.1 million in the last quarter, an important milestone in our trajectory. From the point of view of sellers' experience, we implemented significant improvements, including streamlining product upload flows, diversifying business models, redesigning the sales center, and rewarding recurring sellers. For buyers, we have improved the search and navigation algorithms, increasing the perception of security of the platform with the evaluation of sellers ensuring a high level of service. In operational efficiency, we had a decrease of 14.6 percentage points in logistic costs. Furthermore, we also had the launch of the new Enjoei brand in early 2023 with changes in visual identity, representing an important step for the company towards a broader and more diverse positioning, opening doors to more categories and audiences. I would now like to share more details about our portfolio strategy. It has one of the pillars, the expansion of business models for the offline channel, thus expanding the addressable market. On December 19, 2023, we announced an important strategic step to strengthen the Enjoei group, the acquisition of minorities stake corresponding to 25% of Cresci e Perdi, with a purchase option to acquire all shares by 2028. Cresci e Perdi is the largest franchise network of secondhand products in Brazil, acknowledged in the ranking of the 50 largest franchises in the country by ABF. Operating in more than 390 cities, serving more than 6 million customers, and ending the year with 550 units sold. The Enjoei brand will also have its own physical store operation as of 2024. Our first stores already have an address defined here in São Paulo, such as Vila Madalena, Frei Caneca, and Campo Belo, and are in an advanced stage of construction. The first openings are scheduled to take place from April 2024. The expansion of the network of stores through franchises allows us to capture a large part of the value generated by operations with low investments risks and high power of scale, aiming at reaching 300 stores in 3 years. With investments in Cresci e Perdi and the launch of Enjoei physical stores, we have strengthened our position in the second-hand market, expanding our horizons and building a solid foundation for the future. Now, the operational indicators. In the fourth quarter of 2023, GMV reached 352 million BRL, marking a significant increase of 47% over the previous year and 14% in the quarterly comparison. The performance of this period was positively impacted by Enjoei's operation, which recorded a GMV of 253 million BRL, an increase of 5.3% compared to the previous year and 2.3% quarterly. This reflects the increase in the number of new uploads on the platform, resulting from continuous improvements in products and technology. This trend in the increase of products published on the platform allows a resumption in the growth trajectory. During the Black Friday event on November 24, 2023, Enjoei achieved the highest sales volume ever recorded in a single day, with a 60% growth in GMV compared to the Black Friday the previous year. Over the weekend from November 25 to 26, the growth was 40% compared to the previous year, with emphasis on the fashion category, demonstrating that it is possible to grow above the market with an efficient use of incentive levers. Elo7 recorded a GMV of 99.3 million BRL in the fourth quarter of 2023, reflecting a variation of -15% in the quarterly comparison, which is in line with the usual seasonality of the quarter. The take rate ended the quarter at 26.6%, remaining stable compared to the previous year and 1.2 percentage point below the third quarter of 2023 due to variations in the composition categories. There was an increase in the share of non-fashion categories in Enjoei from 18% in the third quarter of 2023 to 23% in the fourth quarter of 2023, including the infoeletro category, which has a higher average ticket and a lower take rate. The net take rate increased from 16.1% in the fourth quarter of 2022 to 20.3% in the fourth quarter of 2023, representing an increase of 4.2 percentage points over the year. The growth trend of the net take rate, which had already been seen due to adjustments in our commercial policies and improvements in the incentive efficiency in previous quarters, was significantly accelerated after Elo7 joined the group. By the end of the fourth quarter of 2023, the total number of active buyers reached 2.5 million, marking an impressive 111% year-over-year growth. Of these, 1.1 million belongs to Enjoei and 1.4 go to Elo7. The active seller base totaled 1.1 million at the end of the fourth quarter of 2023, including the contribution of 48,000 professional Elo7 sellers. These professionals operate with a wide variety of products, providing a depth of inventory to the platform that complements the Enjoei model. In the fourth quarter of 2023, the total number of items traded reached 2.2 million, growing 41% year-over-year and 12% quarter-over-quarter. Total inventory reached 13.6 million items at the end of the fourth quarter of 2023, representing a remarkable 104% growth over the previous year. Enjoei's available inventory base in the fourth quarter of 2023 was positively impacted by the acceleration in the number of new uploads on the platform, driven by targeted marketing to sellers and the launch of new product functionalities. We highlight the following. The featured store, which rewards sellers with greater visibility for making more product posts, encouraging them to stock their stores frequently. The barcode for books, which automatically fills in information identified by the barcode. The sell a similar one feature, which makes it easier to fill in product information which is similar to information already on the platform. The resale of purchased products, which allows the buyer to become a seller by advertising the purchased product with pre-filled information. I now turn over to Guilherme, our CFO. Thank you. Good morning, everyone. Let's talk now about the company's financial results. Net revenue for the quarter increased 86% year-over-year and 16% quarter-over-quarter, reaching 63.7 million BRL. Enjoei contributed 36.4 million, and Elo7 contributed 27.3 million in net revenue in the fourth quarter of 2023, confirming new businesses and strong availability to add revenue to the group's results. In other words, although Elo7 contributes 28% of GMV, the revenue shared reached 43%, given the low level of investments and incentives and subsidies when compared to Enjoei, and with a similar take rate level. In 2023, consolidated revenue reached 194.6 million BRL, an annual growth of 40%. Enjoei had a positive variation of 8.5% in the periods going from 138.9 million in 2022 to 150.7 million in 2023. In this quarter, the variation in cost of the service provided reached 41% year-over-year and 9.5% quarter-over-quarter, totaling 30.3 million in the period, representing a growth which is much lower than the evolution of revenue. As a percentage of net revenue, the costs showed a significant dilution over the last year, from 62.9% in the fourth quarter to 47.6% in the fourth quarter of 2023. This was helped by the cost decrease in freight, favoring an evolution of the gross margin in the period. In the annual consolidated, the cost totaled 97.7 million in 2023, representing 50.2% of net revenue, a relevant dilution when compared to 65% in 2022. Gross profit had a strong performance in the quarter, totaling 33.4 million, with an increase of 163% in the annual comparison and 23% in the quarter. In the fourth quarter of 2023, expenses including SOP, disregarding amounts related to the acquisition process of Cresci e Perdi, portfolio development consultancy and terminations related to the acquisition of Elo7, all one-off, reached BRL 19.5 million, representing a reduction of 8.2% compared to the third quarter 2023. Given the lower basis of comparison of previous periods since Elo7, expenses are incorporated only in October 2023. In the first quarter of 2024, we also expect the accounting of non-recurring expenses related to the closing process of the 25% stake in Cresci e Perdi, in addition to terminations resulting from corporate structure adjustments still related to the acquisition of Elo7. We also had headcount after integration with Elo7, totaling an increase of 30% compared to the previous year, including 404 people at the end of 2023, demonstrating the capture of synergies with recent restructurings. The increase in the consulting and outsourcing line considers the effects of Enjoei's portfolio development project, Elo7, Cresci e Perdi, carried out with BCG. As a percentage of net revenue, G&A, excluding SOP, and disregarding the specific expenses mentioned, presented a relevant dilution in relation to the previous year. Marketing expenses totaled BRL 17.1 million in the fourth quarter, representing a variation of 81% year-over-year and 21% year-over-year. Given the effects of accounting for expenses regarding the settlement of the Media for Equity contract signed with Grupo Globo in 2020 with no cash effect in the fourth quarter of 2023. Adjusted EBITDA totaled BRL 3.1 million positive in the fourth quarter of 2023, benefiting from the company's continuous cost and expense dilution, and also integration process with Elo7, which already operates with a positive EBITDA. We do believe in the potential to deliver improved results in the coming quarter through initiatives related to reduction of freight costs, which are still under implementation, as well as pricing. The cash policy, cash equivalents, and accounts receivable with immediate liquidity totaled BRL 282 million at the end of the fourth quarter 2023, which represents a variation of minus BRL 16 million in the quarter. Disregarding one-off expenses for the quarter, the group presented a cash change of BRL 6.3 million in the fourth quarter. I now turn back to Tillie. Thank you, Guilherme. The portfolio strategy defined as the basis for 2024 planning and supported by the pillars of category expansion, new business units, and strengthening the value chain, puts us in a position to expand the target market for the next growth cycle. Elo7's acquisition in August opened doors to explore new categories and capture value from similar operations and platforms. Category related to parties and events, already strong in the Elo7 model, show a high potential for additional penetration, becoming crucial growth pathways for 2024. In the last quarter of 2023, Elo7 contributed 43% of the total net revenue and 46% of gross profit, operating with positive EBITDA, highlighting the importance of this business unit for the consolidated result. The 25% participation of Cresci e Perdi allowed us to participate in the offline environment, taking the first step towards the expansion of Enjoei stores. On the Enjoei platform, we will continue to invest in product and technology evolutions in areas such as pricing, incentive efficiency, search and navigation. We are confident in our ability to have product and marketing investments as growth drivers and will remain diligent in maintaining the profitability levels that we have achieved thus far. We remain confident and are excited about the opportunities that lie ahead. We have an ambition to inspire Brazilians to actively participate in circular economy, offer access to quality products at more affordable prices, and extra income to millions of Brazilians. We are now available for the Q&A session. We will now open the Q&A session for investors and analysts. If you wish to ask any questions, please enter your name and company in the Q&A field. Our first question comes from Ms. Jessica Mangus from JP Morgan. Ms. Jessica, please proceed. Well, hello, everyone. Good morning, Vie and Guilherme. Thank you for taking my questions. I actually have two. First, regarding Elo7's structure, is it optimized, this level of G&A? Is it a recurring level? The second question is related to marketing. When we look ahead, is this level going down? If we include the Media for Equity, is this a good level moving forward? Thank you very much. Jessica, good morning. This is Vie. Thank you very much for your question. I will start with the G&A question. We've made one more adjustment in the first quarter of 2024. The trend is towards stability. I do not think we'll have any further adjustments in terms of G&A in the first quarter, but it will be a total of 10%. When we talk about marketing levels, we understand that this was a non-discretionary method, and we can exclude it from the nominal value. We do not see relevant nominal growth for 2024, and that's why we made this adjustment in our adjusted EBITDA. It is very clear, Vie. Thank you very much. Our next question comes from Larissa Sommer, from XP Investments. Please, Ms. Larissa, proceed. Good morning, everyone. Congratulations for your results, and thank you for taking my questions. I have two questions. First of all, in terms of profitability, I wanted to understand if in the gross margin you see any room for expansion. Elo7 acquisition has been very positive. Could you talk a little bit about this integration and also what you see in terms of margins? Second question, I wanted an update regarding the physical stores. Have you started negotiating with franchisees? This is it. Thank you very much. Larissa, thank you very much for your question. I will start answering about the profitability levels that we can expect for the future. We understand there's still room for us to increase our profitability to make our incentives even more efficient. We can see that this level of gross margin is the one we want to have, the one that you can see for the last results, 52%, 53%, perhaps a little bit more, but that's where we want to be. When we actually see opportunities in terms of pricing, our platform has price asymmetries. We can increase the average ticket. We have some sellers who are selling for higher amounts, and that can also be adjusted. This is something that we have developed for the first quarter so that we can start our pricing system. We want to create this update in the platform. A second aspect is to improve the use of our incentives. We have different initiatives to improve the level of incentives in the platform. We have some levers of freight and so on and so forth. We will start improving the use of this incentive. In terms of logistics, we still see an opportunity. One of them is we still have some opportunity with Elo7. We will have gains after the second quarter of 2024. We will also start testing drop-off points where clients pick up product at a specific location made available as a reference. That will also help us reduce our logistic costs. We are very enthusiastic about the results. We can see that the platform is growing at more accelerated levels, and this is something very interesting. Regarding the physical stores, on April 18, we will inaugurate our first store. We have three other stores that are at an advanced stage. We are indeed very enthusiastic. There is a store operating right by our office right now, where we are talking to you. In more practical terms, the first stores to be launched will be operated by us. We will check how efficient they are. We will integrate synergism. Regarding pricing, we see huge potential to our franchises adjusting prices so that physical stores will be successful. This level of success, we are the only ones who can deliver, and the synergism between all of this. We have three stores we will start operating and selling. We do not fear implementation and that we will not sell. We are sure that they will be very successful from day one. The payback we want to offer is differentiated. The brand we offer is also differentiated. We want to sell 30 stores by the end of the year. Thank you very much. That was super clear. Our next question comes from Umberto Alon. He says, "Good morning. Congratulations for your results. I would like to know what is your expectation of cash effect with expenses that were not accounted for in the fourth quarter 2023 with the conclusion of Elo7? Can we expect the generation of positive EBITDA in 2024 and a reduction of cash burning?" Good morning. Thank you very much for your question. The company has continuously improved. The last line is our EBITDA. It has improved quarter over quarter. Our EBITDA has decreased. In 2023, we worked with improvements based on profitability. In 2024, in addition to profitability elements, we have pipeline elements, which, combined with greater efficiency, will allow us to make this change. We will maintain the improvement pathway with a positive EBITDA and positive cash burning as well. I would like to remind you that to ask question, you just have to type your name and company. Please wait while we collect further questions. There are no further questions, and the Q&A session is now ended. We would like to give the floor to Tiê Lima to make the final considerations of the company. Since the company was founded 15 years ago, we have proposed a new way to operate in Brazil, and we have received a lot of support in technology. Our objective to transform this market remains as always. In 2024, we are collecting the fruits of the activities that were carried out in 2023. We are very proud to be leaders in Brazil. Thank you all very much, and join us in this successful journey. The Enjoei conference is now closed. We thank you all for your participation and wish you a great day.