Maha Capital AB (publ) (7M7.F) Earnings Call Transcript & Summary

[Foreign Language]. Roberto and Paulo, nice to see you both again. The floor is yours. So please take it away.

Thank you very much, Kaarlo. Good afternoon, everybody. It's a pleasure here to be with you all. Today, we are making a presentation of our business combination update. As you may have seen, Maha has signed definitive documents for the business combination and the capital increase. So today, we would like to share with -- the market and update with some slides here about not only details of the business combination update, but also recent numbers and the strategy and the investment thesis of this investment. So with that said, I will pass the word here to Roberto Marchiori, our CEO, to Slide #3.

Thank you, Paulo. Thank you, everyone, for being here with us. So regarding our business combination to date, in addition to the previous announced transaction, which was involving GTC program, now the transaction also includes the acquisition of World KEO and [all key] technology assets that will enable Maha to operate also in local currency programs, which we call here as Buy Now and Pay Later solution. So the new proposed equity transaction, as you can see here on the slide, is comprised by issuing up to 141 million shares, which is now including also the World KEO solution and IT support. Previously, this was around 117. So we added a couple of shares to add here in this call for this technology and all these programs and licenses. And on top of that, we also have an earn-out contingent upon the achievement of more than $50 million revenue within the next 2 years. And coming here, about the programs itself so we can better understand what's the difference between GTC and the World KEO. GTC has [indiscernible] is a U.S.-denominated B2B and T&E solution for clients across Latin America solution where we can adjust the payment needs for our clients, adding terms up to 120 days. Now looking for the right side of the slide, we have the World KEO, which is local currency license to operate in local currency inside these initial countries in Mexico, Canada and Brazil. And World KEO is basically a credit solution platform where we can provide for our clients also this ability to optimize their capital needs, increasing their terms to up to 120 days. So coming here for the next slide, Paulo, please.

Thank you very much, Roberto. So moving here to Slide 4, putting in context here, what is the global trade cost program. So it's, as Roberto was mentioning, is a dollar-denominated program for the B2B. And here basically allows the convenience for the companies, not only to make cross-border transactions, but also the convenience of having a very sophisticated platform and IT structure to adequate to working capital needs with our Buy Now Pay Later solution. So we are Buy Now Pay Later for B2B in LatAm and Canada. So as we mentioned, these products are issued in U.S. dollars from the U.S. to international markets but are subject to as jurisdiction. We are investing very sophisticatedly in an AI integration for our GTC program. And as well here, we target financially some companies, subsidiaries of very large corporations on a 24/7 service year-round. And as we said here, and our Buy Now Pay Later solution, we have very flexible payment solutions from 30 to 120 days. Our DTC program is dividing basically 2 solutions, the travel and entertainment that are used basically for travel and entertainment solutions and the B2B solution that we call it the corporate purchase cards and all the B2B payment ecosystem and Inventory Finance Solutions. As we say, it's also a revolving credit line, operates an offshore of balanced short-term debt. Moving here to Slide 5 is what we have added here in this transaction. We saw a tremendous synergy in providing to these clients a full-fledged solution, not only in U.S. dollars but also in local currencies. We are starting here with the 3 main markets in LatAm and North America, that is Canada, Brazil and Mexico. We will explain with in the next slide a little bit of the market side of those companies. And similarly with what we have been doing for the DTC. Here is a solution in which we provide local currency Buy Now Pay Later and Credit Solutions for Canadian dollars, Mexican pesos and Brazilian reals, enabling companies to optimize their working capital. Again, in this transaction, all the proprietary technology belongs to Maha and allowing the suppliers to advance the receivables. We also offer, as we say, this flexible payment terms solution. Explaining a little bit of how it works our payment flow in a typical transaction of credit card, you have the client, the buyer, let me say this way on the supplier, right? The supplier pays for accepting this payment method, he accepts a merchant discount rate for having its payment advanced immediately, basically. And when we add the merchant discount rate with the interest rate that we provide to the client to extend its payment to 30, 60, 90 or 120 days, we charge them an interest rate. So the combination of the discount rate and the merchant being able to receive its payment advance plus the interest rate is what creates our yields here. Moving here to Page 6. We explained exactly how is our portfolio behaving. So as we said here, as the merchant accepts this payment matter by credit card, he is willing to accept the merchant discount rate. And then the interchange fee is the fee paid to KEO for providing an advanced payment for you. And when with our Buy Now Pay Later solution to our clients, we offer them an extended payment that goes from 30 to 120 days. So the sum of the interchange fee, plus the average interest rate is what makes our portfolio. Today, our yield is running at 18% of an annual yield or 1.5% per month. This financial cost interchange fee plus the interest rate is therefore allocated between the buyer and the merchant, right? So positioning Maha to benefit from both sides of the transaction and also creating an ecosystem that is not a heavy burden neither for the merchant, neither for the buyer because they both share these financial costs between them and of course, KEO provides the immediate payment to the merchant and the extent solution for the buyer. Moving here to Slide 7. We present how is our portfolio today? With 2 months of operation, our both GTC and local currency have presented a very substantial growth. In 2 months, we have in our GTC program, $14 million of credit lines with a 13% average annual yield. And for our local currency program, $28 million credit line with a 21% average annual yield. This yield is a combination of the local currency program. Therefore, with a total $42 million credit line and an 18% average annual yield on a monthly basis of 1.5%. Our average terms of credit lines is 61 days. So we are having an annual -- if we analyze our credit lines, we're talking here of $250 million. When we look here to the potential revenues that these credit lines are generating is basically our $42 million times our monthly yield of 1.5%, which really represents a very attractive interest rate to our program. As we have already disclosed, we still have a substantial cash position, which we are using to grow this portfolio even more. We are really seeing here within the next quarters a very strong speed of growing this credit line. This is our expectations to really grow our credit lines in the exponential way and basically deploy all our cash here within the next quarters. Moving here to Slide 8. I will pass the word here to Roberto to explain a little bit of the market potential in our addressable market. Please, Roberto.

Thank you, Paulo. So here represents the combination of the GTC addressable market, which is around $165 trillion market potential. And when you look locally, if you combine all the addressable markets of Brazil, Mexico and Canada, we have more than $4 trillion market potential, which represents also additional growth avenue when we compare here the expectations that we have for the future. So when we look in terms of potential, it's a very huge addressable market. And at the same time, in these regions, we are seeing very interesting interest rates to be deployed and use for these clients, so it can benefit on this market potential and these interest rates. So if you look Brazil, for instance, Mexico and Canada, they are ranging between to 15 -- 7.5% and 4% -- sorry, 2.5% in Canada interest rates. And the average of Latin America is higher than 8%. So there is this benefit of having this exposure across GTC and the local currencies. Here, considering the total addressable market, I think we want to show here, again, the same exercise of the previous presentation with the article numbers where we're going to explain considering this huge market potential in GTC side and also the World KEO local currency of $4 trillion. We have seen here potentially the capability and the capacity of PDs of more than $10 billion, which, considering the same economics of the previous presentations, could reach us directly more than $250 million, $300 million in revenue capacity, which should bring us $100 million to $140 million potential of net income going forward. So that's the size and the capacity that this additional work you bring to Maha. And we have also here the same valuation capacity ranging when you compare with comparables at price to early multiples, targeting around 20 to 24x, the earning of the companies, and also more than 21x the enterprise decided by revenues. So if you combine this, you can have a glance of what will be the potential and driving here the capacity of this company. Going for the transaction time line. So we have been working with our lawyers in the business combination as we published in the last couple of weeks. And now the target is to convene and issued in order to attend further AGM, so we can approve the transaction during the next quarter -- during the Q4 2025, and also conclude the business -- on top of the business combination also concluded a capital raise of $27 million, which will be in the same day as the business combination is concluded. And going forward, we expect to have the dual listing additional capital raise be implemented in the first half of the year of 2026. So ideally, we will conclude the business combination in the next 35 to 60 days, and then we are going to move for the dual listing strategy.

Roberto, thank you very much. With that said, I wanted to really say that we are very enthusiastic here with the project. We do see here that this combination of our very strong capital structure with more than $140 million post closing of equity, plus our very strong technological solution plus huge addressable market with international coverage connected to our network. And as we said here, we do see here that with only 2 months of operation, we have been growing our portfolio in an exponential way, and very -- very pleased to say that and hopefully, we keep growing it at the same pace in a market in which Roberto very well explained, Latin America, we do have very high fixed -- high interest rates. So we have very attractive interest rates to deploy our capital. As we showed here, we're having today an annualized yield of 18%. And as our solution here of Buy Now Pay Later for the B2B companies, we really share this cost between buyer and merchant with our very technological solution integrated with the credit card rail network that is basically of global coverage. With that said, we are pleased here to conclude the presentation. We are -- do not hesitate to contact us also if you have any questions, and we open here. to questions and answers. Thank you very much.

Roberto and Paulo, thanks for that. Very interesting. It seems like you've been very, very busy since the last broadcast here. And as always, we received a lot of questions ahead of today's broadcast. The first question would be dual listing or U.S. listing. And I think you showed us a slide here, but could you give us a time line or even a date or a quarter?

[indiscernible], for the question. Thank you, everyone.We expect to engage in the dual listing since the last quarter of 2025. We expect to come across the first half of 2026. So we are expecting between June, July to conclude the dual listing in the U.S.

Correct. I think just I would add here that we are receiving a very good market for the fintechs in the United States. So we really believe that during the first half '26, we should be accomplishing this an important milestone reserve.

Okay. And I'll look through a question here from a viewer. What is the reason for changing the name to KEO Credit. Is this name change must be made why not KEO Capital?

No, I think your credit is one of the first suggestions, and we like the name because that will be the main purpose and business of the company. But of course, we always need to check the boxes in the legal side, what is available or not. But ideally, we really like when we are going to use KEO Credits. No, I think very good question. I think here are just also putting these into the confidence, we really see this transaction in this market at a very attractive, right, as we tried to explain in the presentation, we are having here a very interesting substantial growth on the credit. But we're going to position ourselves as a credit issue, right? It's a very traditional market and capture this very opportunistic interest rates in Latin America. So we want to put that we are a credit company, right? It's a traditional market. We're not a venture or a tech. We are credit issuer, so -- but of course, it needs to be still approved in the general meeting that any change of names. Exactly, we want to be fully focused on the business. So that's why we are suggesting, and we really like the name.

I have another question here from a viewer, which is a natural question. So how to control the credit risks and likely pay a failure. And given the fact that you now have expanded, will there be any difference in the situation? Do you need to expand the workforce or systems?

Roberto, I think when we look to this to our credit portfolio, right, first of all, our clients or companies and businesses, right? Lots of our clients are also subsidiaries from very large companies. So the subsidiaries from Peru, subsidiaries from Mexico for an American company. So this is also a very important part of our client maybe different here from other companies, right, that are focused on retail, right? We have a much smaller work for us because we're not talking here of millions of clients, but thousands of clients. So we have a workforce that is very focused on the business, maybe on sector wise. So our workforce is very specialist in the needs of each sector and each company. So, we have a smaller overrun cost in terms of personnel. And the second point, when we look to the business, right, we tend also to have a lower default rate because they are businesses and not individuals that have the -- how can I say, the routine. So in terms of business, we have more collateral protection as you have parent company guarantees, you have parent governments of type of shareholders. So we tend to look at ourselves as having a smaller workforce, very sector-wise experts. -- lower default when compared to the retail credit card issuer. And of course, higher average ticket line, right? When we compare to retailers, we were probably here looking to $2,000, $4,000, $5,000, $10,000 lines [Audio Gap] our credit line is much more in the $300,000, $400,000, $500,000 because these are used to purchase, for instance, payment of software payments such as Amazon Web Services, purchase of computers, travel. So it's a larger line to give to clients.

And I think also on top of the risk and the freight, we are also going to commit a very conservative approach of the underwriting risk, so it can be very conservative and disciplined in terms of lending and rating limits [Audio Gap] for clients.

Perfect. And I think just to add that we give a solution to those companies, right? And maybe that's the reason why it was so important in having the full flat solution that we can provide new solutions for cross-border payments, so we can offer them to purchase from a subsidiary in Peru equipment from United States, but also offer local currency in Mexico. So these kind of clients, they are large clients.

So in short, you have large clients, so know your client will be easier, and you also have the [Audio Gap] collateral with the parent company in that respect. Can I also ask you then could you consider moving into other countries, Europe, Asia and the U.S.

Perfect. I can start this question. I think, yes, we do have an intention to become global. Remember that our solution is, of course, we issue credit for Latin American and Canadian companies, but they can use it worldwide. So it's a price that can be using from Singapore to United States. We do see here a very interesting moment that the Latin American countries, right, we do have a very high interest rates. So when we look to the countries of Latin America and Brazil, of course, we have Brazil and Chile and Mexico, we have a very good opportunity, right, to give credit to those companies in a very short-term period, right, with very attractive high yields. When we go to other markets such as Europe, right, this arbitrage is much smaller, right? The interest rates in Sweden, in Norway, they are very tight when compared to Brazil. And that's why we're getting to this annual yield of 18%. This is a very opportunistic market that we are. And that's the reality of Latin America, right? We do have a culture of high fixed interest rates for decades.

So we are open to other markets, but we see here the moment of Latin America amazing to really capture these amazing yields.

And if one turns the coin, one could say that because you're local and know the market, it will be pretty tough for anyone from the U.S. or Europe to replicate what you have done and then compete with you. Would that be fair?

I think we do see here as a first mover, right, not only in terms of having a very solid capital structure in addition to our KEO solution. So we do have -- we do give very convenient solution for the clients. They can, at the same time, do cross-border payments immediately, right, instead of making wire that sometimes take 5, 7, 10 days. So it's a very immediate solution plus giving them local currency solution on an off-balance short-term debt on flexible payment. And this all adds to a very large trend of the world that are the companies digitalizing their payments. So we do -- we are day by day looking at the companies instead of having lots of work and hours, right, spent making payments when you digitalize everything and you have one single solution to make the corporate purchase cards, it eases a lot not only internally, saving hours, but also helps the audit process of the company because everything is digital, right? So we do see here that we are a first mover in having a strong balance sheet, giving a very convenient solution to companies and that we have this -- that is license, right, to operate in all the countries of Latin America, which can also give solutions for a company that in Brazil that have subsidiaries in all Latin America. This is very convenient instead of having one solution for each country, stop-shop solution.

Perfect. And that's why I think since we start the last 2 months, we are having a very interesting growth of credit because it's a very convenient product.

And if we look at -- well, from the first transaction to now, the operation has already secured more than USD 250 million in total transactions. Is it possible to extrapolate that? It's an easy question to ask, but I don't know how much you can answer that. But obviously, 1 look at -- if 1 looks at the graph and the growth potential, what can we in the market expect?

So we are targeting to use first our balance sheet and granting this limit for our clients until the end of the year. And of course, then we are going to work on the leverage facilities. I think you remember that the idea is to have a leverage so we can increase the total amount of credit that we can disburse for our clients. And we are, of course, targeting volumes higher than this. I think this is basically just the beginning, right? We started like 1.5 months, and now we already have this and increase in these limits going forward. But of course, we expect to grow this over the year. I think here, the way we are structuring is that we have a lot of equity really start right with our net cash position, absorbing the clients. And when we have this client in our portfolio, we really are able to get leverage, right, with this data and with this history. And as we said here, if we are having a yield of 18%, this portfolio can be leveraged by hopefully much lower interest rate. When we look to a typical ABS, asset-backed securities facility, they really -- we're really talking of mid-single digits, right? So I think this spread from the mid-single digits to this 18% is what we envision for the short term as well.

And -- I will rephrase a question here. Latin America has high interest but also high inflation here. But walk us through any FX risk you may identify, sorry, in the program using local currencies. And how would you mitigate that?

So the idea is to establish FX and trading strategy where when we are deploying capital into this local currency, you are going to make short-term hedges, which will not be much expensive, but we can protect the exposure in local currencies such as pesos or even reals. So of course, we need to treat that inside the finance department. [indiscernible]. I think perfect. I think the strategy of having short-term hedges, they are much easier than having long-term hedges. So we have -- as we only operate short-term credits, we have this strategy of not having so much exposure on the FX, but more on the spread between the interest rates. Remember that this credit is average base around 60 to 90 days, so it's very easy to create a short-term hedge.

And a follow-up question there and exposing my ignorance here. But would you be able to, let's say, fund yourself in Canada, which is a low interest area and then lend that as it were to Brazil? Or will you mitigate the risk by funding yourself in the country where you have your exposure on the lending side?

So I think it's -- first point, I think it's very easy to raise that in Canada because Canada is a huge market, and you can see there very low interest rates. And at the same time, the risk profile, it's very, very pungent there. So I mean, the clients there basically doesn't have any default. So it's a pretty standard business. The idea, of course, we will start with the equity tranche, but we think it's necessary to start growing and work in parallel to bring senior lenders in this ABS structure so we can increase even more the exposure in Canada. But in my opinion, it's very feasible. We are already looking for alternatives.

And let's remember that a relevant part, right, of our portfolio on the GTC is dollar linked, even though they are issued to companies in Brazil, Mexico or Chile, the invoices are U.S. dollars. So at the end, we have already a natural protection that our receivables are in U.S. dollars. So it's perfectly feasible to get loans in dollars as the collateral is also dollar, right? And give credits in other countries.

And follow-up here on credit and mitigating risk. Is there a plan to obtain an institutional credit ratings, for instance, Moody's or Fitch, to facilitate securitization and structured funding lines.

Yes, I think, that's a very good question. I think that's -- that's the bread and butter of this business, right, with our equity. We create the data. And then when we have the data with our clients, and we really get ratings on senior loans considering the collateral in bed. And for sure, I think the tremendous market in not only United States of insurance companies that really like this kind of product because it's pauperized, large subsidiaries from large companies [indiscernible] or short-term. So it's -- that's why we -- this market of credit card ABS, they really have this very low interest rates on the leverage side because it's a short term, as Roberto said, a substantial portion of it dollar-linked, pauperized.

So it tends to make this -- this package very attractive. But always, right, we are -- at this moment, we are using the equity to unlock and bring those clients when we have this data of 6 months, 8 months, we go after senior loans with a very solid and substantial data so that the senior loans also perceive that this has a good authorization, good diversification, and we can have rating in it. That's why the equity is so powerful here to unlock the ability for us to get the credit line [indiscernible].

Yes. And if I may use that to segue to another question here. And then what kind of -- well, credit losses do you foresee for KEO in this corporate credit card program? And if I could just tie in that to the cash reserves, shall we look at the balance sheet in one way and then expect your ability to lend connected to the cash?

No, we expect low [default] rates because, again, it's a different market if you compare to B2C, the retail. In the B2B market, it's expected to have low default rates. That's the first question. And considering here that we are in product across Latin America in these local currencies, we think this apply in average pace the same rule. And regarding -- the second question was -- sorry, I think I missed it.

Yes, it's the cash reserve has been used to -- how much cash reserve have you been using to finance this facility? And would there be a measure for you to have a cash, let's say, reserve on your balance sheet in order to use that as a leverage when you're lending?

Sure. As average terms, if you look for the market as a whole, normally, this difference between equity and debt stays in a range of 3% to 10%, maybe even less. So that's the type of market we need to look for market to market to see what's the average and the capacity of the lenders to release funding, but ideally, we expect this type of ratio between 30% to 10% of equity cushion when compared to the lending structure.

I think on the B2B, those numbers, they are very high leverage, right? Because remember, those clients, they already have a history of balance sheet of credit. So there is a risk -- I think it's maybe the other thing, there is a restraint on their access to credit. I think they would love to have more credit and today, they don't have access to describe. So...

And then connected to that, how would you communicate this, the lending portfolio as it were when it comes to, well, let's say, size or average ticket and credit losses, what do you want and what would you like us in the market to particularly watch on those key metrics.

No, we are going to prepare a report in a part of the basis, so we can provide all these key steps and the KPIs to the market to understand where we are, how much we are growing over time. And of course, in part so people understand where we are. So basically, that's what we want to provide more information when we used to do oil and gas, remember that we used to show production in this type of metrics. So the idea is to keep the market with the same level of updates in a monthly or quarterly basis, depending on the how is structured.

Yes. And that ties me to another question here. Regarding estimates and forecast for 2027, which is far out. But given the fact that you moved quite quickly here now, when do you expect to give us a forecast of not next year, but a long-term forecast on net profits and lending growth?

No, I think we are now looking to work with banks and research, so we can provide more intelligence and information so they can work in their own assumptions. For sure, doing a dual listing, we will provide more color because in the equity story, we need to show how much and what's our business plan going forward. So I think after this time, in the next couple of months, the market will be aware of where we want to go, how much credit is going to reach, considering all these assumptions behind the leverage facilities and the senior lenders altogether, so we can be aligned also with the dual listing process.

Our capital structure, right, really, really stands as reaching this billings that were we want to reach $6 to $10 billion. So this is a little bit of where -- we believe the current capital structure allows us to reach that when we add debt. So I think, as Roberto said, we are now working with research houses to also allow them to make their estimates and also in the short term, we will have this published so that the market also can have color from an expert, a third party that is independent on an estimate of not only of growth of the credit line to delinquency and defaults but also net income, right?

And 1 final question here then would be, given the fact that you're listed and main operation is in 1 country and then you have credit activities in different countries. Are there any legal rules that would limit the growth as you can see it now, or is it just you get your ducks in a row, and you have your -- well, you're raising your funding. So what is the main, let's say, bottleneck if there is such a thing?

Remember, when we look to our global trade card, we are all the credits are issued in the United States. So even though we give credits to companies in Peru, in Brazil, in Mexico, Chile, the global trade card is a U.S.-based. So it's a one country framework, right? So everything is issued in U.S. dollars, contracts of U.S. dollars. So I think this simplifies a lot the regulatory aspect because we have the capability to issue from the United States to all those countries. And then Mexico, we are already registered as a phone that we have all the authorizations there as well as in Canada and as well as in Brazil. So maybe this question are for those 3 countries that we are already -- we have the capability to give credit on those 3 countries. But the one that serves the majority of the countries is a U.S. solution. So we don't -- at the end of this solution is only in the United States.

So the key is the U.S. and you will communicate the dual listing. And I would say that one should watch this space because it's -- you've been very active. Thank you very much Paulo and Roberto. And we will say thank you to all of you who have put forward questions in the live chat and ahead of those. And if you need any further clarifications, we will recommend you to be in contact with the company. So with that, I said once again, Roberto and Paulo, thanks so much. And to the viewers, thank you, and goodbye.

Thank you, Kaarlo. It's a pleasure. Bye. Thank you, Paulo. Thank you, everyone. Have a nice day.