Earnings Call: Q3 2021

Oct 12, 2021

Good afternoon, ladies and gentlemen. Welcome to Locaweb's Conference Call to Announce the Results of quarter 3 2021. Today, we have with us Mr. Fernando Cerny, CEO of the company, Mr. Rafael Chamas, CFO and IRO Mr. Igor Franco, B Online and SaaS Director and Williams Marquez, Commerce Director. This call is also being simultaneously transmitted over the Internet via webcast and can be accessed aturl. Www.ri.locaweb.com.br by clicking on link webcast Q3 'twenty one. The slide presentation is also available for download on the webcast platform. This call is also being simultaneously translated into English for the convenience of the company's foreign investors. I must inform you that any forward looking statements made during this conference call relative to the business perspectives of Locaweb as well as projections and operating and financial targets are based on beliefs and assumptions of the company's management as well as on information currently available. These forward looking statements are not a guarantee of future performance. They involve risks, uncertainties and assumptions since they refer to future events and the independent circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating this may affect the future performance of Locaweb and may lead to results that differ materially from those expressed in such forward looking statements. Now I'd like to hand the conference over to Mr. Fernando Cerny to start his presentation. Mr. Cerny, you may proceed. Thank you very much. Thank you all for participating. I'd like to thank our employees, shareholders and everyone who contributed to the great results that we are presenting here today. Let me start on Slide number 2 where the quarter highlights. Even with the reopening of the economy and with a strong comparable basis when we compare with quarter 3 last year, when we already had a very high level of digitization, we still achieved impressive results. The consolidated net revenue grew by 65.7% year over year and year to date a 59.3% increase. When we look at the Commerce segment, the growth was 162%, very expressive and year to date a 166% increase. Our customer base grew by 41% in the 1st 9 months of 2021. And if we consider the acquisition of the bag e commerce platform in quarter 3 2021, this growth reaches 96% in the same period, which means that our e commerce platform practically doubled in customers in this period. And our commerce segment reached approximately 123 1,000 active paying subscriptions. One important point is that we had higher investments in R and D and marketing, particularly in R and D and and I'm going to go into more details. This was a conscious controlled decision of the company. And why did we make this decision? 1st, because we still have low penetration of commerce in Brazilian retail. We have not decelerated and we don't want to decelerate with the reopening of the economy. We want to maintain our very expressive distance from our competitors. And particularly because R and D is an expense that can be diluted over time. When we add these four points, it is a conscious informed decision of the company that we find very assertive. And we are already seeing results. We saw some results in quarter 3, first in our sales, as you're going to hear shortly. And second, in the strong evolution of our e commerce platform. And we're going to spend a good portion of this presentation talking about how we are evolving technically evolving our platform. We had an acceleration in the release of new features and an increase in the volume of integrations. Now we have more than 500 integrations for our e commerce platform. Our integration agenda keeps advancing even with a high volume of acquisitions and the acquired companies are performing better than in the period prior to the acquisition. We had substantial progress in our acquisition agenda with the acquisition of Squid. And the acquisition pipeline is not slowing down even after the 13 acquisitions that we already completed since our IPO. And finally last but not least, we had significant advances on our people and cultural agenda. On slide number 3, in the past 8 consecutive quarters. And the highlights here. Well, commerce already accounts for more than 50% of the net revenue of the group. To be more precise, it accounts for 51%. It moved from 46% in quarter 2 to 51 percent in quarter 3, 2021. And most importantly, we see a trend, a positive trend looking forward. On slide number 4, Here we have the addition of new stores. As I said, Locaweb believes that the penetration of e commerce in Brazil is still low. So there's a good opportunity here to keep focusing on growing our operation and this is something that we already saw this quarter. Even after the reopening of the economy, we were still able to maintain a strong pace of addition of new stores and this is a great achievement for us. And how did we do that? By expanding our acquisition channels, by expanding our channels and our customer acquisition efforts in addition to more investments in marketing, strengthening of our commercial teams and the strong evolution of our product and everything goes together here product, commercial teams, marketing and our sales channels and commercial teams and product evolution is a pair that really helps us acquiring new customers. So compared with quarter 4, 2020, we had a 38.3% increase in store additions, which is very interesting. But even more interesting is that we were able to maintain these numbers in quarter 3 and we considering Baguio, this growth rate reached 54.4%. So it's worth noting that quarter 3 had no effects in terms of store additions for Localebe. On slide number 5. Here we see that an important part of all this is the positive evolution of our customer base on the e commerce platform. If we compare since January 2019, now we have a 4.8% increase or a 97% increase compared with the end of last year. Very impressive. And this resulted from all the marketing efforts, the product development Firth's and all the hard work that we did. On slide number 6, On Slide number 6, we see this also results from this acceleration in our technical development. Williams and Igor going to talk more about this, but I'm going to go over the integrations. We have now reached 500 more than 500 integrations of the trade platform with other partnering solutions. And our competitors are far behind in terms of the number of integrations they have. We have more than 500 now and another important fact, we'll have integrations with sales systems, methods the payment, customer service, logistics, ERPs, marketplaces and so on and so forth. And another important fact about our competition is the level of proficiency that the trade solution has reached. One exact indicator to evaluate this is the Recomiya Key Index. And this quarter. Trey reached the best score possible, which is the RA1000 stamp. Our 3 major competitors do not have the RA1000 step. 1 is evaluated as great, one is good and one is not recommended. So when you look at the service level, Tray is the best among its competitors. And when you look at the volume of integration, we still have the highest in the market. And that's why we will keep accelerating. We are in a very comfortable situation. We are in a very good position. We have the margin. Our organic margin was 42% and we reduced it in a controlled manner to 32 Sandd so that we can gain even more momentum to beat the competition. We are in the position to do that and this is certainly a competitive edge that Locaweb has right now. Now moving on to slide number 7, this quarter we acquired the company Skuid that will further enrich our ecosystem. Skuid is a leading platform in influencer marketing in Brazil. Their work with the major brands in the country. And now with LocalWeb, it will be able to expand its work towards SMEs. It is a friendly platform. It works with automation algorithms and machine learning to recommend the best influencers for its customers. Some important facts about the platform. It has more than 100,000 influencers registered. The CAGR in 2020 1 is 130%, which is very expressive and an ARR of BRL100 1,000,000. This is to show the appetite of Localev for larger acquisitions. BRL100 1,000,000 in ARR, it's one of the largest acquisitions that we have made so far. On slide number 8, forms. We do have 5 platforms. Our platforms are in the center. We have Tray, Doca. We have Samurais, Bay and Begi. Then comes conversational marketing, ERP, bling, Vendi and then we have our peripheral systems. For example our conversion with social miner all in. Now we have Squid generating media through influencers. We have Etus for social media, Idares for marketplace integration, Yapay for payments, Tplug with POS, Credit Svera for Financial Services and Meliorin VIA with Logistic Integration. For those who haven't heard our positioning. Why are we using this concept of ecosystem instead of a platform? Because this provides a better journey to customer and we're doing everything in one single dashboard. This will lead to increased ARPU, reduced churn and accelerated customer acquisition because each of these customers will work as an acquisition channel for other customers. And this slide is very distinct slide number 9 because it shows how we are investing in the customer journey. Well, this is an example of a customer journey inside LocalWeb. It's not the only possibility. And each customer will use our services and products in the order a more convenient most convenient to them. But for example acquisition, we have 5 tools for customer acquisition. We have Social Miner, All In, Atoos, Swede and Idares. And all of them can generate sales to 6 of our platforms, Trade, Trade Corp, Doca, Baggi, CPLUG and Samurais. CPLUG is a POS that also works as a platform for orders. Then conversion, the improved conversion can be captured by Okta Desk, Olin and Social Miner. Payments, if you have recurrent payments or subscription payments, they can be done by Vindi or YAPAY for regular payments, management and integration can be done by Blink, Iberis and C Plug. Logistics can be done by Meloringvio and retention and loyalty of these customers is through all in social miner or Okta desk. And this is all supported by the financial services of Credit Svera. So this is just one example of how customers can use all our tools. This slide makes it clearer that we are working with an ecosystem. We're not just offering platforms alone and this is not yet complete. We will continue to invest and now on Slide number 10. You see that our M and A process is now just we have a very active M and A area, as I said, that involves the company's top management. I am strongly involved together with members of the Board and other C levels of the company. And today we have 5 MOUs that are either signed or under negotiation. So the company does not intend to slow down its M and A process. And another benefit from all these acquisitions is that today we have the largest and the best team of digital entrepreneurs. Here we have all the names that have joined us in these M and A processes. We have 20 top talents that have joined our team and are working with us today. And what do we get from this? We have a pool of talents for the company and that is very strategic for the group. This helps us retain people, this helps us attract Talend's. And finally, this helps us bring more companies to our M and A radar. As you heard last quarter and it's not different this time, the acquired companies considering our very structured integration process and the high synergy of all its acquisition all their acquisition operations. These companies are growing at a much faster pace than they were before they joined the group. Here we have some examples. So just to give you an idea, Melior in view increased its customers by 130% compared to last year. The Doca platform increased by 105%. Meliorin's view had a shipping increase of 90% in its shipping GMV. Bling has 63% more clients TENT. These are just a few indicators that show the success of our M and A strategy. And finally, As for people and culture, we were listed as one of the great places to work and we received the GP2 TW certification and Trey was number 17 among all companies in Brazil midsized companies and King Coast was 22nd. We are a company of people, so this makes us really proud. Well, of course, we are a technology company, but in order to have technology, we need to people. So this is very rewarding and a reason for pride. And still about people and culture, we launched our 2021 trainee program and we really strived to bring minority groups into the company and we were very successful in that endeavor. We were able to diversify our payroll and now 50% of the trainees approved were women, 30% were from the LGTBQIA plus group and 30% were black, which is also a great achievement for our group in terms of diversity and inclusion. And this shows that the group really cares about these topics. Now I hand it over to Igor and Williams and they're going to go over the impact of our investments in technology and the new features that we're adding, which have been very important for the group. So Williams and Igor, the floor is yours. Thank you very much, Fernando. Good afternoon, everyone. This is Williams. IMSA. I'm the Commerce Director. And let me give you some light on the numbers of the quarter. We had some important innovations and one of them was the launch of our intelligent campaign functionality on WhatsApp. This is a very innovative project unique in Latin America and it comes from a partnership with Facebook that owns WhatsApp to start to empower small businesses with the power of e commerce. So we're enabling small stores to run campaigns on Facebook, to retain customers, to convert customers and also marketing campaigns. This is a totally new tool, unprecedented and LocalWeb's ecosystem allowed us to create this campaign with Facebook. Of course, there's an intelligence behind it that comes from all in social minor, which allows us to identify the behavior of our customers to start these campaigns at the right time. We have a very powerful tool that allows us to send a message to the cell phone of every consumer and today in Brazil practically the entire population has smartphones and practically 100% of them use WhatsApp and of course we comply with all the privacy criteria. Trey was chosen by Facebook conduct this project because it has all this intelligence behind its work to create very assertive campaigns and it complies with all the applicable standards. So we create personalized campaigns, shopping cart recovery and coupons and this tool together with other tools that I'm going to present shortly strengthens our focus on improving the rate of success of our customers in their own website. The more visitors customers can bring to their website at a lower cost, the better for us. And this comes with social commerce, mobile commerce and with these interactions between the store and these mobile features. Now on Slide 17, this is another partnership with Facebook. We expanded all the integration solutions that we have such as the Facebook portal itself and Instagram. And this is to simplify the process to allow our customers to advertise their products on Instagram, to have a catalog of products on Instagram, to advertise both on Instagram and Facebook. And most importantly they can measure their results. So we have a new conversion API which was made available and Trey is one of the first to integrate with this API and this will allow our merchants from the dashboard inside the tool to have all the information about their campaigns. Just like in WhatsApp that they can also operate through this single dashboard. They also have the ability to operate through their store operate on Facebook through their store, so they can update catalogs and run campaigns and measure their conversion rates. On slide 18. This is a cross sell project and our integration we have now made available to all our customers integration with Medorin FU, which brings an operational benefit to our customers because they have 2 different carriers and they have a real benefit of saving in the shipping costs and they can also offer these options to their clients, which allows them to save productivity time in order to print the labels and everything related with logistic management can be done from their dashboard. So in addition to the cross sell with another tool of the group that was recently acquired, this is also a great benefit to our customers and this is already available for the entire customer base of LocalWeb. So this is an integration for which we are already seeing a lot of success. On Slide 19, we have a recent launch, which is ecom class. It is a content platform, very high quality content through a portal where our clients can watch business videos, videos about sales strategies, commercial strategies, strategies to promote their business. Ecom Class has exclusive content produced by our teams and our partners and it works on a subscription model. So it is the Netflix of e commerce we always say. And our customers can access it for free. This product can be used by anyone, but if you're a LocalWeb customer, if you subscribe to any of our solutions, one of your benefits is that you can use ecom class free of charge. So we are increasing our focus on content and learning for our customers. On Slide 20, here's Localev's payment strategy. For payments, we have a very strong agenda and we made the decision of increasing our focus and strengthening our strategy in payments. And this resulted in a unification of the payment operations in our e commerce unit. So YapPay, which is our solution for transactions for payment transactions, which is seeing a lot of growth and now we are implementing Yap Pay for the Vindi customer base. Vindi works with subscription payments and in the past few months we had very expressive results and month after month we will keep seeing an acceleration of these results and due to this relevance, we decided to unify our efforts and Dantas, the founder of Vindi is now leading our payment methods this division. This is a first step to increase the payment solutions that we can offer our customers. We will start with Vindi and Yapei, but we are already considering the expansion to other financial solutions in the future. Vindi already has a strong presence in subscription payment management. It works with collection, subscriptions and all the automation if you have a subscription business, subscription based business and YapPay also has a very consolidated process for payments. So this is a naturally consolidated union of the 2 solutions and now Dundas is going to lead the evolution of our payment agenda in the group. Now I turn it over to Igor and he's going to talk about the online and us. Thank you, Williams. Good afternoon, everyone. On Slide 21, here we have 2 launches that we had this quarter under the umbrella of SaaS and which have a lot of synergy with the online customers. One of them is Go email. Email continues to be very strong among LocalWeb's customers. Our customers continuing to use email very frequently and email is a type of product that is still growing consistently in our portfolio. Go. The Go email is an initiative that puts LocalWeb in the competition for collaboration and productivity tools, which was something that we didn't have in our portfolio before. We used to have an email solution, which was previously positioned for the entry level with simpler and more limited solution and Go Email comes to complement that previous solution with much with many more features. So Go Email delivers mobility connectivity collaboration, sharing of calendars, contacts. This is a very important first step in our SaaS portfolio to compete in the market of productivity and collaboration. Another relevant product that we launched this quarter is the ClickLead. ClickLead is a plug in solution and when the customer is creating their website in LocalWeb, they can connect their website with WhatsApp. So whenever you visit a website and you see a WhatsApp button to send a WhatsApp message, you're probably seeing the ClickLead product behind the scenes. It's the ClickLead product operating. The ClickLead gives our customers Citi to interact with their clients through WhatsApp on their website and ClickLead also allows them to manage these contacts. So they can manage contacts, they can manage the LGCB, everything related with the relationship of the store and their contacts. They can ensure the privacy of the data in this exchange of messages with customers. So ClickLead is an addition to our hosting and website portfolio. On slide 22. Another very relevant fact that I want to share with you today is that we had a very significant progress in the joint offer of Deliveri Gereto, our own app for food services delivery and it's integrated the integrated offer with the C Plug, our POS platform. So now we have this joint offer and the Liberigirato customers have the option to use the C Plug POS in an integrated manner, in a very connected manner. And this integrated offer already accounts for 15% 10 of the bookings of delivery Direto. So 15% of everything that is sold every month on delivery Direto is already considering this integrated offer and using the C plug POS functionality. This is very relevant. The 2 operations have been connected for a little over 3 months and this integrated offer already accounts for this very Prestea portion of the Liberi Directo sales. Now I hand it over to Rafael Chamatin, who is going to go over our financial results. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Thank you, Igor. Good afternoon, everyone. So let's start on Slide number 24 with the quarter highlights. We had 1 more quarter with wonderful numbers. The net revenue increased by 65.7 Sandd, the Commerce net revenue 162% year over year. Our GMV and here we're using a fully comparable pro form a base increased by 43.7 BRL4.5 billion in this period, very expressive. The Yape TPV is also growing very healthily, increasing by 44.3 percent with BRL747.3 million in TPV in quarter 3. The online and SaaS also had a good revenue performance increasing by 20%. And the gross profit growth was larger than the growth of the revenue. So there was an expansion in our margin and we closed the period with BRL 1,800,000,000 in our net cash position. Cairn and we have about BRL600 1,000,000 now booked in the company's liabilities. So BRL1.8 billion in free cash without considering the BRL600 1,000,000 that I just mentioned. On slide 25, we see our net revenue. We're closing the quarter with BRL209.1 million in the consolidated results of the company. Commerce has BRL 105.6 €1,000,000 an increase of 162.2 percent and the online and SaaS 103.5 million, a 20.4% increase. On slide 26. We see the net revenue for commerce specifically. So considering quarter 3, 2019, quarter 3, 2020 and quarter 3, 2021, BRL21 1,000,000 BRL40 1,000,000 BRL105 1,000,000 very expressive growth. We increased the size of the commerce operation 5 times in 2 years and 2 excellent revenue sources. Well, we can't really talk about better or worse revenue. All the revenues are synergic and complementary and they account for and commerce today accounts for more than 50% of the group's revenue. On slide 27, we have our adjusted EBITDA. We're closing quarter 3 with 33.6 percent, a small drop year over year. Now if we look at commerce, it's practically Table, BRL16.7 million and B Online and SaaS from BRL18.8 million to BRL16.9 now let's look at these numbers in more details on Slide 28. We already explained some of the effects of our acquisitions, but we let's start with the chart in the middle for commerce. In Q3 'twenty we had a 42% margin, then we closed Q3, 'twenty one organically excluding our acquisitions with 35% margin. And Q3 total Q3 is 15.8% and this difference comes from a marginal negative contribution of our acquisitions, which is totally in line with what we expected and what we advocate in our acquisitions. We're buying companies with high potential for synergies with a good growth level that will be further accelerated in the future and we are not looking for profitability initially. We are looking for capacity to support and sustain growth over time. Now about this organic decrease from 42% to 35%, Fednob already talked about this, but I must stress again that we have 2 components involved here. We have the acceleration in sales and marketing and R and D. And of the 7 points, 2.4 percent come from sales and marketing. So most of this decrease is essentially due to our investments in people, fixed costs, the quality of what we do and the competitiveness of the company in the future. When we invest in marketing, this 2.4% means that last year we spent 16.7% in sales and marketing and now in quarter 3, 2021, 19.1. So just for your information in the Q2 this year it was 16.3. So this is an acceleration and it's less than 20%, which maintains our CAC and then they are very healthy numbers. Commerce. So that's for commerce. For B Online and SaaS, Speaking of profitability, organic margin is 18.3%. The differences also due to the acquisitions that we made and in the consolidated numbers it drops from 22% to 18%. But when for organic only it's 24.5%. And it's worth looking at the behavior of the margins over a 9 month period. On slide 29, looking at the year to date numbers, we have our consolidated organic margin very it's very close 20 6.7% against 26.5%. For Commerce, it's 39.6%, close to 40% or the 42% of last year. Encore B Online and SaaS 20.7 to 19.7 and this is due to the companies that we acquired. Finally, before we open the floor for questions, let me go over slide number 30, the adjusted net income of the company. We also had a good performance. We generated BRL25.6 million in adjusted net income. And what we mean by adjustment is the accounting effects resulting from our acquisitions. You see here the future earn outs that we have to pay and altogether they represent BRL23.5 million and these will continue to be relevant numbers that will have an economic impact on our net income. But when we think about cash generation and operational performance, they are totally in line with what we had to pay for the companies. We're talking about CapEx here and investments of the company. Sola 25.6, we practically doubled this number year over year because in quarter 3, 2020, the net adjusted net income was BRL13 1,000,000. Thank you all for your attention and we can now open for questions. Our next question comes our first question comes from Andresales, UBS. Hello, Fernando, Rafael, Igor, Williams. Thank you for the call. Good afternoon and thank you for taking my questions. I have two questions. Can you give us more information about the company's GMV? Because despite the growth that we see year after year, we see that there was a slight drop when we compare it quarter over quarter, something that we didn't see last year. So can you please give us more details about this scenario? And about your acquired companies and the impact on your margin. Of course, then you have to look at it case by case, what is the schedule that you see until this margin their margin adjusts to the organic margins of Locaweb? Ladies and gentlemen, please wait while we reconnect with the speakers. Andre, can you hear us? Yes. We apologize, we had a small connection problem. Can you please repeat your question? [SPEAKER CARLOS GOMES DA SILVA:] Sure. I have two questions. The first question is about the dynamics of the company's GMV, because despite the growth that you show year over year when we compare quarter over quarter there was a slight drop when compared with quarter to 2021, which is not something that we saw last year. So can you please explain why this happened? And my second question is about the your acquired companies. How long do you expect these companies to take to get closer to the organic margins of Locaweb? Hello, Andre. Thank you for repeating the question. We apologize for the technical problems. Regarding the GMV, it's very important to see what happened with the company's revenue. The SaaS business monetizers through subscriptions. Mr. Speakers, we are having audio problems. Can you please speak closer to the microphone. Can you hear us now? Your audio is still very low. We cannot hear you. Ladies and gentlemen, we kindly ask you to hold for a few more minutes while we reconnect with our speakers. Can you hear us now? Andre can you hear me? It's very important to mention that the dynamic of our business. The first important thing to say. Mr. Rafael, Mr. Igor and Fernando. We are connected. You may proceed. The quarter 3 results conference call of Locaweb is now close. Thank you all for participating and have a great day.