Méliuz S.A. (CASH3) Earnings Call Transcript & Summary

Good afternoon, and thank you for standing by. Welcome to Meliuz webinar to discuss the results for the first quarter of 2023. My name is Giovana Villari, I work in Meliuz folks team, and I will host this event. Our conference will be held in Portugese and translated into English simultaneously. [Operator Instructions] With us here today, we have Israel Salmen, Founder and CEO of Meliuz; Gabriel Loures, Growth Director; Andre Amaral, Director of Strategy, Shopping and Data, Marcio Penna, Investor Relations Head. And before turning the floor over to Israel, I would like to inform you that this event is being recorded. [Operator Instructions] The materials presented are available for download on our website ir.meliuz.com.br in the Results Center section. Over to you, Israel.

Thank you, Jojo. Good afternoon, everyone. It's a pleasure to be here speaking to you and it is a point to bring our team -- all the management team that are involved in the great missions that we have for the year ahead of us. And I'm very happy with the performance of our team. We started the year with some sad news, unfortunately, we had to reduce our team. People we like, people who had a very good relationship with the rest of the team and somehow this can impact our team get the bit upset, but this team is very engaged in the mission. What I saw our team doing in the 3 or 4 or first months of the year made me very proud. At the moment when we are changing ways, we're starting an agreement with Banco BV. And I see that the team is very engaged. I have the feeling that they have control over what's happening and I trust -- and we are going to focus on the company that you saw at IPO, they were generating cash with the [indiscernible] margin and generating growth. This is no news for us. We've done this a number of times last year when Meliuz have hardly received an investments. And then we received some investments from the IPO made us go back to the trajectory that demanded by the moment. So we are -- have more aware of the costs and expenses related to the operation. And we are also optimizing revenues and some lines of businesses with growth and also involved in the growth of subsidiaries. I feel that the team is very engaged with our purpose. And the results that we are going to show you will make you understand what the new Meliuz is after the agreement with Banco BV after the sale of Bankly, and with a leaner team so that we can proceed with the next steps. Andre and I will be available for the Q&A session. The presentation will be coordinated by Gabriel and Marcio, so I turn the floor to them, and then I'll be back to talk to you again.

Thank you, Israel. Good afternoon, everyone. My name is Gabriel. I'm going to go over our results and the growth Director. I'm going to talk about shop in Brazil, this vertical as well as international shopping and I'll bring more details about our partnership with BV and also discuss our vertical of financial services. As you know, we have -- we made sales agreement with BV December 2022. In the agreement, we set forth the partnership with the bank to offer a portfolio of financial services and products launched on Meliuz app. But in an asset-light model, where Banco BV will compensate for the activation of those products and it also brings in all the expertise that the bank has been offering those products to the client, Fraud prevention and other topics that are brought with the expertise of BV. During this period, we developed -- we started development in January. And in the beginning of March, we had lead pilot project running for employees of Meliuz and BV. And after April 12, we opened the first current account and the first card for the final user. We are very happy with the speed that we exerted in this offer. And this was especially possible because we use the same structure of bank as a service that is Bankly that we use for the cards and for our account. We have a multidisciplinary team across the company, Bankly, Meliuz, B.V. working in the offer of those products so that we can scale up the volume of the opening of those accounts and cards so that we can do this in the progressive manner in months to come. We cannot see the results in the P&L of Meliuz yet. Marcio will provide more details about it shortly for 2 reasons: first, the volume in the first quarter was negligent; and the costs are also reflected in the P&L in part of the first quarter, and it started to be passed through as of the second fortnight of March. And we are going to show you a little bit how this is materialized in our P&L. We are accomplishing our mission, which is to scale up our offer of products and offer a financial services in our -- included in our purchase experience. So we create a Meliuz experience a unique experience to the user regardless if not and they are opening Meliuz or a BV account. And this will ensure the partnership in the long term. As next steps, we are also going to launch new financial products according to the financial agreement we executed both related to insurance, credit and other products that are on the road map of the partnership and all the technical team is working on this. In addition, we also have some formal items in order to formalize the agreement with the Banco BV. Marcio will also provide more details about it. Now about the vertical topic, we have the focus in optimizing the image we showed once again quarter with a growth in our metric rate. So in the first quarter of 2022, we reached a net take rate of 2%, and now we reached 2.2%. And this forces our positioning of Meliuz in front of our partners. In spite of the challenging moment, we're facing, we can prove month after month that the amount we'll have a return and Meliuz continues to be a very strategic channel for those partners. This can be seen in the higher volume of campaigns for our users. Our users can see new opportunities to get cashback. And it also reflects the commissioning plan of Meliuz that is reflected in the net take rate together with that on our side, we work to ensure intelligence in the segmentation and the offer of cashback to ensure that our cashback strategy will generate value to the user. But at the time, we want to reduce the cost that it has in our P&L in a segmented in a smart way. So we do hundreds of tests in order to ensure with proper metrics showing that we are delivering cashback in the optum manner. At the same time that we are working to improve the net take rate, we also see that we have reduced the marketing expenses when compared to the same period of last year. So with a drop of 42%, this is only possible because Meliuz have some groups which are retained and month after month, we continue purchasing more and more so, we managed to ensure we are able to ensure healthy behavior of our purchases, and we retain the parties and we have -- we grasp the range and make all the adjustments of investments, so -- also monitoring the higher interest rates, and we also increase our return target and reducing the payback time expected from the campaigns. And with this, we can maintain our business in a healthy way at the same time that we resume marketing investment and bringing more results to our system. This slide reflects the evolution of our module and win-win model that we have from Meliuz, we have been managing to deliver more campaigns, again, with our partners for opportunities for them to generate efficient sales, more opportunities for our users to gain cashback and then -- at the same time a healthier margin for the business. And this is reflected in our financial results. In spite of the 42% reduction that I mentioned before, our revenue dropped only 11% year-on-year comparing to the first quarters of those years, and this is reflected in our efforts in our other business lines that generate incremental results for Meliuz and also reassures for our partners' exposure in all of our channels of communications. As I said, our cashback at Meliuz had a drop 27% in terms of cashback related expenses and the consequence is a healthier margin in our Shopping Brazil business with a growth of [indiscernible] we can see on the right, year-on-year from BRL 19.9 million to a margin of BRL 26.5 million in the first quarter of 2023, reinforcing that we can generate value to our users, but we can also make it profitable, though with better cash back businesses and better management of our business. I would now like to talk about the international shopping business, the Picodi and a big milestone reached 2 million accounts were open since the cashback operation was launched. And as we mentioned in the last release, of results Picodi reached those results which recurrent at Meliuz in spite of operating in less than 2 years, we have already reached and with Meliuz, we took over 5 years and the result is a very high level of buyers in comparison to the first quarter of 2022. We can see this great increase. This is reflected in the operating numbers, GMV of the company grew by 400% and net income and cashback operation also grew in line with the 400%. Cashback operation now accounts 38% of net income total of Picodi against 26% of the fourth quarter of 2022 showing the efficiency of our strategy. When we replace the legacy business with a cashback business, this is very successful in our expectation that it we will bring in more users that will continue purchasing with Picodi allowing us to grow the business exponentially as we did with Meliuz when we were generating even more results and more GMV. In relation to operating results and revenues, this is what I had to say. I would like to turn the floor over to Marcio, who will talk more about the financial aspects.

Thank you, Gabriel. Good afternoon, everyone. It's a pleasure to be here with you once again. So next slide. More important than speaking about the costs and expenses that were reduced along the quarter that are yet is to show that the company is making an effort -- a long-term effort. So we've been doing this for 1 year of reducing all those costs as a whole so that we can have a more asset-like structure. So we review the first quarter, and we have a pro forma release when we see that cost structure that it can be sustainable for the quarters to come. We can see the valuation here. We have a robust reduction in terms of expenses and costs in all lines related to expenses, especially headcounts, personnel, as was mentioned in the beginning of our presentation, and at the end of the period, we excluding Bankly, which is about to be sold extraordinary items, namely those which are not recurrent in the balance sheet. Excluding those, we get to a level of expenses, which is much below of what we had at the end of the fourth quarter of 2022. And the last column ring shows the expenses that were excluded after the commercial agreement that we signed with Banco BV, but this amount of BRL 5.5 million shows [indiscernible] had happened in the quarter as a whole. So that you can -- we did this because you can understand what would be our cost study from today on. So we have recurring expenses because we believe that this is what Meliuz can deliver in the next quarter in terms of expenses and costs. We see upside in the sense, we believe we can have further reduction, and we are working hard on this. And this is everybody's goals inside Meliuz so we are negotiating with suppliers. We are making operational improvements. We are maximizing the margins of the products that are delivered in order to reduce operating expenses even further in a sustainable and long-standing manner for the quarters to come. Now moving on to the next slide. Here, we show how this would impact the bottom line of the company. So again, excluding the Bankly, which is about to be sold to Banco BV. So we come from a consolidated EBITDA negative BRL 13.1 million excluding the extraordinary items, which are nonrecurring as we mentioned in the report, with the provision of America and cost of termination of agreements, ports, fees, because of related to BV [ BRL 7 million ]. So we get to adjusted EBITDA BRL [ 7.6 million ] in the period. So bringing into a more long-lasting structure that we can deliver onwards, excluding the expenses that after the sales agreement that I mentioned in the previous slide, we reached to a recurring result of BRL 5.5 million. We are working hard in order to generate cash for this year -- operating cash flow this year and improve the results of the company period-over-period. But we deliver a very good improvement in comparison to the previous quarters. Considering the cash level, which is very robust. The financial result is very positive of [ BRL 13.1 million ] and excluding some other expenses related to amortization of [ BRL 0.7 million ], we get to a recurring net result of BRL 7.6 million, and this is a result as I said, more important than the result of the first quarter. We can see this as a new company, an asset-light company that is going to be operated from now on. So we have more upside, generating more revenues. We still not have the revenue from the agreement with the Banco BV, and this is something that's going to start materializing as of the second quarter. Next slide, please. As we have done in the past quarters, we show a little bit of what's been happening with our singles partnership with Banco BV in this first quarter of 2023 was very important because we have 1 approval of the -- Bylaws, and we had the election of a new member that is integrating the Board to help us in the evolution of the company. We started the offer of financial products of accounts and cards and acquisition of the share -- minority share of 3.85% of Meliuz with Banco BV. What are the next steps? As you said, we talked about the periodic way to exercise, and this is something that is already materializing. And it's going as -- or as the May 26, and we are about to complete the signature of the SPA for the sale of 100% of the share of Bankly in a partnership with Banco BV. So we are very close to this event. And next the deliveries related to this. As soon as the SPA is find and the branded right is completed, the transaction will have to be approved by the Central Bank. And after the approval by the Central Bank, we have yet to complete the transaction, and then we will have to wait for 2 years so that the peemptive right will continue for the company, and they are also allowed to offer the same terms and conditions in this time line related to the sales partnership with Banco BV some weeks ago, we talked about grouping of shares and deployment of the shares. So the shares will have a new value and with different entities and values for the shareholders. We'll finish the presentation here, we can now open the Q&A session. Thank you, everyone. We are now going to start the Q&A session.

[Operator Instructions] The first question comes from [indiscernible] with BTG Pactual.

Congratulations on the results. I have 2 questions on my side. First, could you quantify the impact -- the impact of loss of Americanas, and how much of the flow of Americans would be redirected to other partners who are operating inside Meliuz environment, considering that we're in the second half of the second quarter. Could you provide more information on the cost adjustments made during the quarter. I would like to understand what were the measures to control costs? And what can we expect in the future? And what's there to happen. And I would like to understand the details related to the cash flow. In the first quarter, we saw a drop of BRL 116 million in the cash position and there was a cash burn of BRL 24 million, excluding Bankly, as you mentioned in the release -- that means that the difference of the BRL 92 million of drop is related to the lower number of clients on Bankly. And if so, could you justify and explain what happened to justify that drop?

I can start answering the first question -- Marcio, you can continue Israel.

And thank you for the question. In relation to Americanas, the market understands that this was one of the largest e-commerce players, and we estimate that we are representative snapshot of the Brazilian market. As we understood also that there was a drop before the crisis we observed some reduction. There's unique that reduction in fact losing ground while Meliuz started continued growing the share of Americanas lost some ground during the period. And the share at the end of 2022 was much lower again we saw in other moments of our history. And when the crisis happened, as we saw in the beginning of the year, quickly, we started adopting some strategies to direct loans to other partner e-commerce, and we were very successful in this new redirection. We measure this, we monitor this very closely in the beginning when everything was happening so that we could monitor what we were losing in terms of Americanas and what would happen to the other related partners. What we can say here is that a large part of those sales made in -- then all we saw them dropping to other partners. Of course, not 100%. We still have some partners. We have some e-commerces in the same category of Americanas which are not partners of Meliuz. So we lost some sales, but we've made a lot of efforts with other partners and that evolved our sales team and we managed to absorb a lot of the volume. So what we saw in the first quarter, as Gabriel has already explained in detail in the release, there are consequence of the e-commerce trend. Also when we prioritize the campaigns with better margins -- better operating margins for the company. And the consequence is that -- there is a deceleration of GMV, but we increased the operating margin of this vertical. In summary, a large part of the sales were successfully migrated to other partners and Americanas itself announced that their volume had a significant reduction as a whole, not only at Meliuz, and those sales continue to position other players, and we could do a very successful job in this regard.

I can answer the question about cost, and I can provide some context. Since last year, we have creating efficiency team where we look at the costs of the company. I can say for sure that the results of cost reduction in the first quarter is not a result of the efforts made in the first quarter, but it's an effort that has been done for a long time. More specifically, talking about the cost lines and looking at Meliuz, we commented on the optimization of cashback-related costs, which are main line of costs. We have been working a lot on reviewing suppliers and negotiating in order to understand each supplier and we have been negotiating with them all. And as mentioned in the beginning of the presentation, we had a reduction of our headcount so that we can -- could make adjustments to the new market moment. And this had an impact on the results in a positive manner. Now looking at the partnership with Banco BV as Marcio explained, we start to deliver some of the costs -- some of the costs are going to be assumed by Banco BV, and this will mean reduction in the cost basis. Now accompanying more asset light and this has not been seen in the first quarter, totally considering that this what had -- happened after the second half of March, but we expect that we are going to see the results in the quarters to come.

Just let me add, Ricardo. Thanks for the question. We can say for sure that most of the gains that are going to come from negotiations with suppliers are not reflected in these results. They will start to be seen in the future. So Loures have been working on this. And the results are going to be seen in the next cycles, and they are not irrelevant. These are costs that we consider to be very high. And I can say that we were very successful in our negotiations.

Ricardo, thank you for the question. I'm going to answer your last question in relation to the difference of cash comparing the fourth quarter of 2022. And this quarter, yes, you're right. According to the quarter results, we have the reduction of around BRL 106 million. And we have to make it clear that not everything is related to cash burn. So BRL 23 million, as we mentioned in the report came from Meliuz cash, BRL 17 million from the parent company, payment of bonus, cash burn and other items and the remainder about BRL 7 million related to cash burn -- related to Bankly and other subsidiaries put together. As part of this item, about BRL 90 million, they're not cash burn. So there is a counterpart. 90% of this amount is related to a project that was discontinued. [indiscernible] my access, which was a prepaid card product. So the balance was delivered to the client and we account for as cash and the strategy behind it is the focus on bank-as-a-service using the product -- the product has been to evolve along the time. The prepaid card is a product that we do not consider to have a profitable margins. And the remainder -- the remaining of 10%, which is not related to cash burn. Cash used for the credits to be paid related to the guarantees that we have to have in the period of the end of the year to cover sector related to credit card of our customers. So we have this obligation to have this amount because we have more expenses in this -- in this period. So we have this provision, and if we don't use it, it go back to the other line. So this is the explanation, I hope it is clear. If not, you can let me know.

Our next question comes from [indiscernible] with Bank of America.

I have 2 questions on my side. The first one is related to an update of what Shopping Brazil is playing out, looking out to the second half of the year and make a comparison, if there's any change considering what we saw in the market in the first half of the year. And the other one is related to Bankly? You mentioned about cash burn of the subsidiary as a whole. But I would like to know how Bankly would behave if there is any adjustment and if there will be a further cash burn, we -- and if there's any way that we can monitor this, so that we can see this reflected in the final amount of the purchase.

I'm going to answer the first question and then Andre will add to that. Looking into the future. In terms of e-commerce, we understand it's facing a challenging period. But we are very enthused about everything that we have been doing in 5, Meliuz in the shopping Brazil vertical. We are growing revenues, as we mentioned in the latest release. And we have shown a lot of value to our partners. So we are doing whatever we can in order to have our partners be more exposed. And this is done via Meliuz Ads. And there are other initiatives that are done here. So we are getting closer to our users. So we are taking all the opportunities [indiscernible] or commodity periods. And at the same time, we created other lines so that other partners can join in. So other revenue lines we are working on. So as a new partner portfolio, we are very cautious that we are very enthusiastic, but we are enthusiastic with the possibility, not only for the second half -- second quarter, but also to the rest of the year. Only to add, it's important to mention that we also have other initiatives that many of them are being tested right now. So it's difficult to quantify to provide any guidance, we do not provide any guidance related to this. But product team is working on new solutions in the e-commerce vertical in order to solve other pains of our partners in addition to the other ones that we already addressed. So this is something that we can expect along the next months when the new product being launched.

Frankly was negotiated at BRL 210 million. In addition to the [indiscernible] the period, and that would be as far as the Bank of Brazil approval so of Central. So this is an amount which is relevant that will be approved by the Central Bank. I let say that I will look at this as a zero priority, top priority, and we're working with Bankly team and we are leading this front. We are very focused on this breakeven on Bankly. So we just mentioned the breakeven formulas. We've mentioned that the results are still to come. So we can expect the same with Bankly. And this is something that does not happen overnight. So for the second quarter, we are going to continue making a lot of adjustments as we will start to generate the results in the second half of the year. I'm personally leading this and the Bankly team is engaging in order to reverse this result and protect what we expect in terms of [ EV ] that we negotiated with Bankly and we are about to receive. So we are monitoring this very closely, and I thank you again for the question.

Next question comes from Andrew Ruben with Morgan Stanley.

I was hoping you could update a bit more on Picodi, how far along you are in the shift that cashback looked like a nice ramp of users this quarter. And then how we should think about the legacy coupon business, how that progresses over the coming quarters and years?

Thank you, Andrew. I'm going to answer this question in Portuguese. Looking at Picodi and true, we have made a lot of progress in the 44 countries where Picodi operates. So going back in our history, we launched a cash back first for 9 countries in September 2021. And then last year, we did the rollout of this feature of cashback to all the other countries where Picodi operates. Obviously, some centers are more relevant for the final results of the company. All our strategy here of conversion of user into a cashback user is based on the power of the problem that is provided by us, because it's the user that will come back after the first purchase. And as a consequence, it generates value along the time. And the coupon user is a user that comes in organically, looking for better opportunities. He can go back to Picodi or not, maybe he'll buy just once and if we can use the discount at another site. So the strategy of the business is to qualified organic. And our idea is that cashback business will continue growing and be even more relevant considering the results of Picodi. We are going to build those groups that will generate GMV and will pile up along the next quarters in order to increase the results of the company in almost explanation way, just like Meliuz found since its foundation in [indiscernible] 2011, I hope it was clear. I would also love to reinforce a point, which is very important. When we started Meliuz in 2011, for some years, we had a level of take rate, which is half of what -- half of what we see today. So we offered less cashback to the users. And as a consequence, we generated fewer sales to our partners, few incentives for purchases. And along the time, after we visited the operations of our partnered shops, when we saw the affiliated network. And also when we grew the number of users of Meliuz, our part of the negotiation of purchasing power was greater with the shopkeepers. And at Picodi is something we haven't even started. So there is a big upside as we see it because we have a stronger user base, and we are going to start knocking the doors of our partners, more than 10,000 across the world and also considering our partner affiliates so that we can do work, which is similar to what we did in Brazil to those take rates. So it's a combination of cohorts using users that are accumulated as Gabriel mentioned, but there is a lot of opportunity in terms of revenue to be gained and we know the way since we've done that in the past. And the proof is that when we look at users as Loures mentioned, we managed in less than 2 years, we managed to bring in an international base of users of 2 million people. And we took over 5 years at Meliuz to do that. So this is a result of the know-how we had, how to make this product work, how to relate well with the user. So we understand this commission ramp-up that we received from the shops will happen at a better pace than we saw with Meliuz in this -- in the past. I can only say positive things about this operation, even their small and very enthusiastic for its operation in the future.

Our next question comes from Kaio Da Prato with UBS.

I would once again go back to the adjusted number considering that is alone with a negative EBITDA of BRL 1.5 million and profit of [ BRL 8 million ] You mentioned about renegotiation with suppliers who would like to understand a little bit more what's the potential of those negotiation is the first question. In addition, the second question would be what could be the other growth drivers for Meliuz in the future. I understand that GMV growth is key, but at the same time, you have focused on -- you mentioned a cashback. So how do you see this dynamic. Can we see that a moment when GMV will work from as in the previous quarter or if in the short term, we are going to see the growth going to lower cost and expenses. So if you could talk about the dynamic, it would be very helpful.

Can I talk about suppliers and then you can add to what they said. As I mentioned, we have worked very hard on negotiating with all suppliers of Meliuz. So this is a lot for the large and small suppliers, of course, we are observing all the contractual periods, but we are making a lot of effort in order to find the best solutions, because we're doing everything that we deliver to our clients and all the process that we use at Meliuz. So I cannot provide an exact number in terms of expected from suppliers because we do not provide guidance, but what we can see that we're looking at all cost lines of the company, and we are having a very concentrated effort. But it is just the beginning of the work. And we hope that this reviewed and this number and we got a revision of the base of customers will grow, and we will bring more results.

The second part of your question. Yes, I can answer that related to the growth guidance in the future, what we expect down the road? How you think for the question. Obviously, we expect, we understand that the Market Shopping Brazil is high click. We're undergoing the going moment, which is more challenging that we have faced in the past that may be -- there will be a drop in the interest rate, and we may start a new better cycle for the growth of the company for the retail sector especially, and this will drive our card business, which is the cashback. In addition to everything, which is not to everyone, there are other products that we are launching at Meliuz Ads. We have been working on this project on our app. We are providing opportunities to our partners to be more exposed by Meliuz users and have a better chance to be clicked on and to sell more. So we continue boosting the sales now with Meliuz Ads, and we have seen this growing in terms of percentage every quarter, as to revenues, it has a 100% margin because we create this in-house work. So there is no need to hire anything external, and we have the Meliuz Invoice, which is an offline product that has been growing a lot. It has already been accessed to -- by more than 3,000 cities in Brazil and with no advertisement, no marketing from our side. Our users using the app tries to find what is Meliuz Invoice and they consume the product. So we do a lot of tests in order to see what's the best way to offer this to the users, so as our partners can have more sales. And obviously, the best way to have the remuneration on the transactions. And of course, this is going to be an avenue for growth for Meliuz. In addition, we have to mention Picodi, which is a pathway that is the best way, which is not on the short term, but we expect that in the average term, it will bring robust results to the company. I would also like to remind you that we have Promobit and other subsidiaries have been working well. And there are companies generating cash, and we expect all of them by the end of the year, generate cash. So these are opportunities that we see from a general viewpoint. And lastly, please add what I said, we have the partnership with Banco BV that does not involve only the current account but -- and the card, but there are also other products that can be offered to the market in the future. So these are financial products that are going to be announced to the market as of the second half of this year.

Only to add some more information. One of the main growth drivers that we can expect along the next 2 months is certainly in the vertical of financial services as the consequence of the partnership we're establishing with Banco BV. Remember the co-branded card, we grew that project, but we understand it had some limitations in terms of revenue leverage because we did not have any control over the project. It assures the partner. So we move down only with Bankly in the past year. And as we have announced before, this is not news to most of you. With the partnership with Banco BV, we can open accounts at a faster speed and be remunerated by this, since we are also going to be generating value to BV. We are also going to use the cards and we have market role different from what happened when we had the co-branded. And as we've mentioned before, in April, we started the rollout of the cards considering the partnership with BV. And we also have teams developed -- developing as accessory products with very positive margins. And we believe that those projects are going to bring good results for the next months. So we have some squads dedicated to the construction of those projects that -- in addition to the remuneration from those cards, there are also going to be drivers for the market and for revenues to the company.

We now close the Q&A session. I would like to turn the floor back to Israel for his closing remarks.

Thank you for everyone's presence. We continue highly engaged with our mission, focus on what we have to do, and we know exactly what we have to do up to the end of the year. I'm very engaged and committed to this. And I convey all my trust to the team and my willing to make everything happen. And I feel very light in the accomplishment of this mission up to the end of this year. I think we are on the right track. And we'll be together in the next earnings release. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]