Meliuz S A : Transcript Webcast - Strategic alliance between Méliuz and BV

Webcast Transcription

Strategic Alliance between Méliuz and BV

Marcio Penna:

Good morning everyone. Firstly I would like to thank you all for being here at the beginning of the year, above all I would like to wish an excellent 2023 for us. Our objective here today is to talk a little bit more about our strategic alliance, the deal we have struck with BV Bank last Friday.

I, Marcio Loures Penna, am here as Head of Investor Relations. I am also joined by Israel Salem, our founder and CEO, Luciano Valle, our CFO and Investor Relations Officer, and Gabriel Loures, our Chief Growth Officer.

Our entire event will be held in Portuguese, and simultaneously translated to English. To do so, simply select the desired language by clicking on the icon labeled "Interpretation", located at the bottom of the screen.

Just recalling that this event is being recorded, and all participants are initially registered as listeners. After the presentation is completed, we will initiate the Q&A portion of the event. To ask a question, simply click on the button labeled "Raise Hand".

The material of this presentation was just archived in the CVM, and is also available on our web site, where you will be able to browse and look at the material.

To begin the presentation I will now pass the floor to Israel. Israel, go ahead.

Israel Salem:

Thank you, Marcio. Good morning to all, and a happy new year. I wish a happy 2023 for all present and their families.

I think the best way to start, which I know is a bit cliche, those who are with us longer, must have heard me say this other times. So much on the IPO ocasion, such as the occasion of some acquisitions that were made, but also on our follow on.

But the cliche is, for me, that this is another very important milestone in our history as Méliuz, and in my history as founder, that has been here since day one. And there is no way not to call this, the new day one.

When we started the negotiations with BV, with Gabriel, CEO of BV, my eyes lit up. I saw in BV the opportunity that we were looking for to put the Company back into a rhythm of growth. Which at the same time has a fast, but efficient pace.

Always looking for the efficiency that we have talked about in our chats. Operational efficiency, with a positive bottom line and cash flow.

BV is going to help reach this position, in which we can grow and invest, knowing that the results, instead of coming in the long run, will come in the short term. This is positive for our Company, completely changing the position of our bottom line.

So I have a very good feeling about the beginning of this year, because I feel like we are pulling some weights off our shoulders. We are even using the expression Asset Heavy, by saying that we are migrating from an Asset Heavy model, to an Asset Light.

I feel like we are taking some weight off our teams, which will allow us to be a lot more efficient and fast-paced in the next months. So we will get into details here, but I have a very positive feeling.

I was super impressed with what I saw from BV, and I am also going to talk a little bit more about that. About the changes in our day to day with this partnership, which we are taking to assembly very soon.

So we migrated from an Asset Heavy to an Asset Light model. And by doing that, we are left with a lean model, focused on growth, with a much lower cost structure and expenses. Basically, in the model we were operating until recently, we had a very high capital need. And besides that, we also ran the risk of credit.

A decision was made, it was our choice to make this move, and follow this strategy. But when this decision was made, we were in a totally different market. A market environment with a very low interest rate, easy and cheap access to capital, which allowed us to take more risks and invest in new projects, like the financial services with Bankly, that we announced in May of 2021.

However, within the current market context of high interest rates, we felt, like I said at the beginning of the call, trapped. To grow meant to keep burning cash.

We have always been a Company that has managed to grow at a very fast pace, by generating a sustainable cash flow in most part of our history, and that was exactly where we wanted to be after this strategic alliance with BV. A place where we could get back on track, to the growth pace we desire. The pace our team prefers to deliver, our individual way of working.

I believe we are back to a pace that literally makes us happier in our day to day lives. Being able to grow and innovate, etc. And in addition, we accelerate the Payback rate of the financial services and products that we offer. Basically, in the previous model, we had big investments, and a big output of cash with every new financial product that we launched, like for example the cash card, which had extensive costs.

So in the beginning of the operation we had these high outputs of cash. But now, the tables have turned. With our new alliance with BV, we now have the script on how to operate, for accounts that we open, or cash cards that we launch.

And all costs related to these financial services structures, the manufacturing and shipment of the cash cards, the customer service, is all BV's responsibility now, with this partnership.

So all of the Asset Heavy portions of the operation, we will migrate to BV, that manages these fields with expertise, as you will be able to see on the next slide.

So now we can again focus on what we do best, in our area of expertise, that is precisely user acquisitions, engagement and retention. And encourage these users to make purchases from our partners, or order our financial products that will be on the shelves.

Therefore, we reinforce this relationship cycle between shopping and financial services. Which is what we have been working for these past few years, to be able to connect those two said points. By giving the client an excellent shopping experience but at the same time providing them with financial services which will allow them to have a better journey.

Additionally to this, with BV, differently from the previous partnership that we had before the acquisition of Bankly, all of the consumer's experience will continue to be within our app. For those who have been following us longer, I have always spoken about the importance of having all of that experience of financial services embedded in our app.

Controlling that experience means that we will be able to put in the products that we are developing, our essence, our way of working, our way of servicing the customer. So we bring novelties, we bring revenues because of the accounts, because of the cards.

In the short term, we are turning that key. And in the Company, when it comes to the bottom line, this will happen very soon.

But at the same time, we maintain what we do best, which is the user experience. And I believe that this is the key point of this strategic partnership, that will enable us to grow fast once again. With highly satisfied and happy customers, with the products that we develop.

We can go on to the next slide. BV has vast experience and a sound financial service portfolio. Besides an experience in credit speaking to the consumers. And this is something that we have always respected here at Méliuz.

When we began to work with credit in-house with Bakley, we always respected the fact that we had a great deal to learn, and we took steps very consciously, as a way of learning before we were able to speed up.

And BV is here to shorten the path and this credit experience for consumers, and will enable us to once again speed up our growth pace, given that they already have all of this know-how. Now, the BV balance, it does not require mention, they have a credit portfolio of over 80 billion and all of this, of course will play in our favor in this partnership.

Besides this, the background of BV in banking as a service, I consider BV as being practically one of the fathers of banking as a service in Brazil. They were doing that way before the concept became more disseminated as it is at present.

So we could not have a better partner to have Bankly close, Bankly and that structure. And so that it can continue to provide us with the API's and services that we need to offer to our users.

Now, this strategic alliance, and Marcio will speak about this in greater detail, is divided into four pillars, which are related and among themselves. We have built this transaction and this partnership where each of these bullet points become a support for the others.

We are not able to build anything where one thing can operate without the other. The commercial agreement is the first, I have already referred to this, Marcio will give you more details. The Bankly transaction, the sale of the control of Bankly, could reach 100% in the next 90 days.

A minority investment, which aligns our interests along with those of BV, bringing BV closer. We

have a better seat. We can have help in our day to day, and this has enabled us to reach a level of commitment among partners, which was necessary to offer the best product for our users. And the call option, which is also an option that BV will have throughout the next 24 months.

So I would like to give the floor to Marcio, so that he can speak about all of these points in greater detail. And I will be back for the Q&A.

Marcio Penna:

Thank you, Israel. If we could go on to the next slide, please. As I mentioned, we signed a strategic partnership with BV Bank that includes several terms.

In order to simplify the material fact that we had last Friday to translate these slides, I will be focusing on these four main topics to be highly didactic. The first is the commercial agreement. The commercial agreement, which is quite different from a partnership that we had with a bank in the past, involves the users' experience; we continue to have autonomy in terms of the users' experience on our app.

The front is ours when it comes to remuneration, we have three short term remunerations. Remuneration for each card issued, a fixed fee that we will receive for each card issued. Remuneration for each account activated, once again a fixed fee, and a remuneration which is a percentage of that TPV, it is a fixed percentage. These values, of course, cannot be announced, but these are the three main forms of remuneration.

Initially, our commercial agreement foresees exclusivity of the card with BV Bank, besides other products. So we will have a percentage of remuneration, whichever product we create going forward in terms of financial services, obviously we can do it jointly with BV or with other partners.

The second part of the transaction refers to the sale of Bankly. It is important to say that we are not speaking of a sale per say, but a memorandum of understanding. A memorandum that has three points that have been disclosed to the market.

We have a term in which this could happen in 90 days. So from this moment on to the next 90 days, we have this option that could happen. The second point refers to the sale of the majority part of the bank. The BV Bank is not interested in having a minority stake at Bankly. They want 50% of their shares plus one or all of their shares. There is no possibility that it will be lower than 50% of the shares plus one.

And the last point of this transaction, for economic purposes, we have considered an enterprise value of R$210 million for the totality of Bankly. Should we sell 100% of the shares, it will be based on that price of R$210 million. If we could go on to the next slide, please.

Here I would like to talk about two additional terms. The minority investment and the call option for the rest of the shares. Which is the present day corporate structure of Méluiz?

We have a reference block made up of four partners, Israel, that is here with us, Lucas, André, and Org Investments LLC, which is an instrument used in name of Ofli. Jointly they have 23.9% of their shares at Méluiz, the rest are in free float and they correspond to 76.1% of the shares.

Now, what is going to happen in this first moment of minority investments? 3.85% of Israel's,

Lucas's and André's shares, will be sold to BV Bank. Now BV will come in with a minority participation into Méliuz, with 3.85%. The reference shareholders will decrease their stake to 20.08%.

Still speaking about the minority investment, it has been agreed that both the BV Bank and the reference shareholders, in common consent, will vote to include a seat in the board for a person that will be nominated by BV Bank. With this, we conclude the first part of the minority investment.

When it comes to the call option, there are some issues involved here, of course, and the main ones are: this is a call option that could take place in up to 24 months, the maximum term would be two years. It could, of course, happen before.

In this call option, it has been agreed that in the first six months the BV Bank can acquire the remaining shares of the reference shareholder, those 20.08%, plus the 0.87% of the Bankly CEO, Davi Holanda.

Representing a total of 20.95% of the Company. The BV Bank could acquire that part in the first six months for the price of R$1,50 corrected according to the CDI. And the 18 remaining months until we reach the 24 months. The call option will take place with whatever is higher, R$1,50 corrected with CDI or a 10% discount based on the price.

Just to clarify, the average price weighted by the volume of the last 30 trading sessions. This is what could happen with the call option for the BV Bank with the reference shareholders. It has been agreed, among both parties, that when this call option does happen, in the same terms that have been announced, R$1,50 or with a discount of 10%, the BV Bank will make the commitment to make a public offer to acquire all of the remaining shares.

That is, 76% of the free float, the BV Bank has made the commitment to make an offer based on the same terms used for the call option.

Now, when we speak about practical issues, what will happen moving forward? And if we could go on to the next slide, please. We are going to hold an assembly, not this week, but at the beginning of the coming week, with some terms that will have to be accepted by our shareholders.

Among these, we have clause 46 of our bylaws, where we will request a specific waiver for this deal, so that this clause does not impact fee negotiations.

We know, once again, that between the parties, we have agreed that the same offer that the BV Bank will do for the option call, will also be done for the minority shareholders, to avoid another negotiation.

This poison pill will be taken down while we negotiate this deal, and we would like to clarify that the stakeholders will not vote. They will abstain from voting after we bring down the poison pill.

So we have an assembly for the approval of this as a whole, and for this instrument through which the deal will operate for the purchase of shares. In the first convening, it is necessary for any change of bylaws. This is not because of Méliuz, it is due to the CVM, and we need to have two thirds of a quorum for the assembly. It will be very difficult to have this.