Locaweb Servicos De Internet SA

BOVESPA:LWSA3

Earnings Call Analysis

LWSA Q3 2023 Earnings Narrative

In Q3 2023, LWSA highlighted an 8.9% revenue growth compared to Q3 '22 and a 5.2% sequential quarter growth. Notably, the commerce operation rose by 14.1%, with net revenue reaching BRL 224.1 million, while platform subscriptions grew nearly 19%. The General Merchandise Value (GMV) of the ecosystem expanded by 15.3% to BRL 15 billion, signaling Locaweb's solid presence in the Brazilian commerce ecosystem. EBITDA improved markedly, especially for acquired companies, from a negative margin to 2.8%. The firm's net cash position stood strong at BRL 1.1 billion despite BRL 635 million in anticipated earn-outs. Focusing on cost controls and operational leverage, LWSA aims for sustainable profitability growth and has initiated several strategic endeavors, such as platform Wake's launch, specialized in financial services, and prudent M&A activities, all indicating a promising future.

Solid Revenue Growth and Optimism for Future Quarters

The company demonstrated a robust performance with consolidated results showing a 9% increase year-over-year, equating to BRL 330 million for the quarter. Subscriptions, a vital indicator of sustained growth, saw a near 19% increase, highlighting the company's ability to expand its recurring revenue streams.

Enhanced Margins Indicative of Operational Efficiency

Both consolidated margins and margins for acquired operations showed promising trends. Consolidated margins were at 9.9% with a trajectory from negative to nearly breaking even, and acquired operations have reached nearly a 15% margin, a significant improvement since their acquisition in November '21.

Financial Stability with Strong Cash Position

Financially, the company is in an enviable position with BRL 1.1 billion in cash and no debt, aside from earn-out payments amounting to BRL 635 million, leaving the company with a net cash position of BRL 401.7 million. This is complemented by a turnaround from a BRL 7.3 million loss to an adjusted net profit of BRL 24.5 million, underscoring the effectiveness of recent strategic measures.

Operational Leverage and Efficiency Drive Profitability Gains

Profitability in acquired operations grew due to operational leverage and stringent cost control. The company maintains the client acquisition cost (CAC) while consolidating operations for better brand recognition and cost savings, achieving operational synergies and contributing to the margin expansion.

Strong Cash Generation and CapEx Reduction

Cash generation for the company has surpassed the company's EBITDA, a result of reduced capital expenditures and a focus on growing revenue through low-investment efforts that maintain healthy margins.

Strategic Moves for Sustainable Growth

The company is pursuing cross-selling and cautious inorganic growth through mergers and acquisitions (M&A) that could significantly impact earnings. Initiatives in pricing have already started to bear fruit, particularly with certain products, and are expected to influence Q4 positively and substantially impact the next year's results.

Challenges and Improvements in Payment Operations

While there has been a noted decrease in payment chain margins due to increased competition, the company is implementing measures to reverse this trend. Efforts include pricing strategy adjustments and commercial initiatives, aiming for a rebound in the coming quarters.

Economic Headwinds and a Rally for Q4 Expectations

Despite a challenging economic landscape, the company has managed to maintain performance, growing e-commerce by about 90% from the previous year. The executive team has expressed optimism for Q4, expecting improvements to continue, driven by strategic initiatives and market agility.

Earnings Call Transcript 2023-Q3

[Gracielle M., executive]

Hello. Welcome to LWSA's Q3 2023 Earnings Conference. I am Gracielle Silva. Joining us today are our CEO, Fernando Cirne; CFO, IRO, Rafael Chamas; BeOnline SaaS VP, Higor Franco; SMB Commerce VP, Willians Marques; Commerce and SaaS Enterprise VP, Alessandro Gil; and Financial Services VP, Cassius Schymura. This conference is being streamed online via webcast with simultaneous interpretation into English and will be available for replay at ri.locaweb.com.br. You can also download the slide deck for this presentation by clicking on the webcast link. The statements contained in this document regarding LWSA's business prospects, operational and financial forecasts as well as future growth estimates are merely projections and, as such, are based solely on its management's outlook for the business. This outlook relies heavily on market conditions, the performance of the Brazilian economy, the industry and international markets and, therefore, may change without prior notice. Unless otherwise stated, all variations and rounded off figures here presented have been calculated in thousands of Brazilian reais. This business performance report includes both accounting and non-accounting data, such as organic and pro forma operating and financial results as well as projections based on the company's management's expectations. The non-accounting data have not been reviewed by independent auditors. [Operator Instructions] I will now turn over to Mr. Fernando Cirne, who will begin the presentation. Please, Mr. Cirne, you may proceed.

[Fernando Biancardi Cirne, executive]

Welcome, everyone, to our Q3 2023 earnings conference. We begin on Slide #3, where we have the highlights for this quarter. And I'd like to start by talking about profitability and cash generation. The major highlight for this quarter is the EBITDA for our acquired companies, which came to 2.8% margin in the period. This is a result of the work that we've been doing for nearly 2 years. We started with a 12.2% margin. This is continued work that has not come to an end yet. There's still a lot of work to do ahead of us, but this is definitely a great accomplishment. This is a result of operational leverage and, obviously, of a much constraint. Another highlight is cash generation, which outgrew our EBITDA. And on the issue of growth, our net revenue has increased by 8.9% versus Q3 '22 and also 5.2% when compared to the previous quarter. In fact, we are pointing out the results compared to the previous quarter. That is because the company has been accelerating and growing very substantially versus the previous period. And so you'll be seeing that reflected in many of the results we presented. Also talking about our commerce operation, which accounts for the largest part of the company. That operation has increased by 14.1% versus Q3 '22, totaling BRL 224.1 million net revenue and growing by only 7.3% versus 3 months prior, which is also very substantial. The revenue from platform subscription has actually grown by nearly 19% in Q3 '22 versus the previous quarter. That shows how our client acquisition has grown steadily for this operation. When talking about GMV, COGS and subscriber base, the GMV for our ecosystem has grown by 15.3% versus Q3 '22, totaling BRL 15 billion. This shows how representative Locaweb is within Brazil's commerce ecosystem. Our own store GMV has grown by 22.5% versus Q3 of last year -- of this year. Our TPV has grown by 34.6% versus third quarter of last year, coming to BRL 1.7 billion this quarter. Our subscriber base grew by 19.3% from 151,000 in 1 year earlier to 180,200 in this quarter. This is very important because we are preparing the company for when the economy begins to pick up again. So we'll have a substantial basis to move up for. Now from -- on the following slide. In the previous year, we went from BRL 196.4 million to BRL 224.1 million, up 4.1% sic [ 14.1% ]. I'd also like to point out the 7.3% growth versus the previous quarter. So we have been accelerating. And this is not such a clear figure when you talk in Y-o-Y terms because one year ago, we had very substantial growth in e-commerce going from -- or growing by 87% between '21 and '22. So when you look quarter by quarter, you see 7.3%, which is very substantial. So we really are starting to grow again because of the many efforts that I'll be detailing by the end of this presentation. So when you break down the revenue from commerce between ecosystem and subscription, subscription meaning monthly installments. If you subscribe for example, for Bling or Tray, you see the ecosystem shows smaller growth. But when looking year-over-year, that's the result of a milder economy, but we already see a very significant growth this quarter by 11.4%. Now that's the result of a slight acceleration in our subscription base growth. So versus the immediately prior quarter, we grew by nearly what we grew year-over-year and that is because we have a very robust basis for comparison. Our ecosystem has grown by nearly 87% between 2021 and 2022. And the positive highlight was Melhor Envio, which grew by 28% versus Q3 of '22. The revenue from platform subscriptions grew, as I said, by 18.8% that is to say that the acceleration in subscription growth has been steady, which is very important. As I said, we are preparing the company to grow its ecosystem by the time the economy starts picking up. As I said, we've already felt a little bit of acceleration considering that we have had these 14.1%, but this is a way to prepare to grow the company in the future. Moving forward to Slide #5. Here, you can see that the continued pace of new subscriber base increase has been true. This is a basis 100 comparison. So you have the first quarter of 2020 when we had our IPO. And right after that, we saw an acceleration and have been growing ever since. So there's not a decrease. We're not losing the new stores. So we had COVID, which profoundly affected many operations, but that was not the case for Locaweb. And when it comes to e-commerce subscribers, we see the continued growth in paying subscribers of our commerce operation. Now when looking at GMV -- and I'm now on Slide #7. When we look at the ecosystem and own store GMV, our ecosystem GMV grew by 15.3% versus 1 year earlier, going up to BRL 15 billion and in annualized terms, we have BRL 60 billion, so Locaweb is naturally a major player in the Brazilian market. As I said as well, looking at the quarter-over-quarter results, so what we grew in -- versus Q2 of '23, 8.9%, which is also very representative. And when it comes to the owned store GMV, so efforts by the client themselves, the client that does not have an online store that was by 22.5% in versus 1 year ago and by 10.2% versus the previous quarter. And this is interesting because one of our purposes is to teach our clients to have their own marketing efforts, whether that's by e-mail marketing or working their own customer base or working with social media. We help our clients to have their own efforts in that sense. And that has shown results so much so that our own store -- the own store GMV has grown or has outgrown actually the ecosystem GMV. So moving on to the next slide, Slide 8. Here, we have the new institutional brand, LWSA. So what led us to change the brand name? Locaweb is the brand we are using to our BeOnline/SaaS operations as a website, domain, corporate e-mail and so on and so forth. Our commerce operation, which currently account for over 2/3 of LWSA, is supported by other brands, such as Tray, Bling, Melhor Envio and so on. These brands do not have Locaweb on their name. So clients of those brands do not see themselves as Locaweb. And this is something I'm saying based on research. So we felt we needed a corporate name that could embrace and encompass all of them. Even Locaweb company is a name that has commerce operation customers confused, the LWSA ticker is one the market already widely uses. We've tested it, and it's been very well received as an alternative corporate brand name. So in order to keep a relationship with Locaweb, but one that was not as strong as Locaweb company starting now, we will be using LWSA as our corporate brand name. Locaweb will continue to be the exclusive the BeOnline/SaaS operation brand name and the other brands within the group will use LWSA as their sponsor name behind all of those other brands. So this will be the brand name structure for the group as of now.

Our corporate name then, LWSA will appear in those 3 forms using the same typography that we used for a local web company. The one for our SaaS operation will be the one in red. And starting now, the group will now be called LWSA. So moving forward, this is what LWSA will look like. So no difference from what we had before. It will be made up of 4 different business units, starting with ERP management then financial services, third, BeOnline/SaaS, which uses the Locaweb brand, but as a group, you're no longer a Locaweb company, but rather LWSA, Commerce enterprise and Commerce SMB, this is how we'll be working or how we've been working with the market.

Now moving on, I'd like to turn the conference over to our CFO, Rafael Chamas, who will dive a little bit deeper into our finance figures. Thank you very much.

[Rafael Chamas Alves, executive]

Thank you, Fernando. So moving on with our earnings conference, I'll start on Slide 13 by showing you the net revenue for the period divided by our 2 segments. I think Fernando presented a good analysis of this. This quarter requires our quarterly and yearly basis and show some of what Cirne has already said. So the consolidated result showed a 9% increase versus 1 year ago. And when looking the comparison versus Q2 -- or the increase was by 5%. So we ended Q3 with BRL 330 million. Breaking it down, when we look at commerce, we saw year-over-year growth by 14% coming at BRL 224.1 million. And looking at the quarterly performance, we had 7%. We saw some interesting figures making that up over the course of the performance. The increase in subscriptions was by nearly 19%. So that's very, very significant, considering that last year, we have seen robust growth in e-commerce. Q2 was a strong one for us. After all, we had grown by 88%. So the conclusion is annual growth by 14% is based on a very strong basis for comparison because of the increase in subscriptions by about 19%.

And when looking at it from a quarterly perspective, which shows the trend for the company in future quarters shows now growth by 7% versus the previous quarter. BeOnline/SaaS showed different performance, bringing the average a little bit down. So when we look at the annual performance, what we had was a 1% decrease coming at BRL 106 million. And what explains this decline is something we've mentioned for several quarters, and we now have the end of this trend a little over a year ago, we made the decision to discontinue some of our operations in the corporate BeOnline/SaaS market because of low profitability. So this is because of the growth in profitability. And if you look at it quarter-by-quarter, you already see the inflection point because as opposed to a decrease. We have a 1% increase from BRL 104 million to BRL 106 million because of the end of this journey of discontinuing some of our corporate operations. Once again, pointing out that we were looking for profitability with that move.

If we move to the next slide, I think this makes what I'm saying clearer, we're going to talk about the margins and the effect I just mentioned on growth becomes evident. So on Slide 14, we have the company's EBITDA consolidated at $54.1 million with a 9.9% growth. And here, it's interesting to look at our margins. The highlight in this case is definitely the margin for acquired operations. we ended up by 2.8% versus the prior quarter. And I think that we have a very interesting curve looking at that. We go from minus 12% to virtually 0.3% margin. That's 15 percentage point increase. And Fernando has already said this, this is not where we stop, but it's very important that we've come to this. And more important than that is to understand that the reasons that let us here are very sustainable ones. We're talking about leveraging our business operations with healthy gross margins, a little demand for growing investment in client acquisition in order to keep growing steadily. Obviously, a very disciplined cost control as well. So these are very healthy aspects of the business and the model of business that lead us to understand that this is a trend that should continue moving forward. Looking at the other segments, as I had said before, about BeOnline, we exchanged growth for profitability moving forward with the more sustainable operations and relinquishing those that were not. This continued this quarter, which shows this was a very healthy choice for the company. And commerce, as we always say, has been at around 34%, 35%. This quarter, we're ending at 32%, but this is due to very healthy seasonal aspects of the period. So when you think of prospects for this industry, the message remains the same as the one we've always said. So we should be between 34% and 35%, which is a healthy margin for the business. I think the major piece of news here is our acquired operations finally breakeven, and we find a margin of nearly 15% since we -- the highest since we've acquired those operations in November '21. Moving on to Slide 15. Here, we talk about the net cash position of the company. We see a very positive balance, we ended with BRL 1.1 billion in cash. The company has no debt in its cash balance. What's compromising is essentially our earn-outs or our payables, which is something we talked a lot about last quarter and how the dynamics of that will work. What the company has is liability today includes the best estimates for payment so there's no change with regard to what we expect to pay. We're talking about BRL 635 million, which allows us a net cash after earn-out payments of BRL 401.7 million, so a very solid position. Moving on to Slide 16. Here, we have the company's net profit. So we are moving or reversing the BRL 7.3 million loss that we had last quarter with BRL 3.9 million and the effects because of the accounting record and the payment of the intangibles that we were paying, we're talking about the earn-out installments here with an adjusted net profit of BRL 24.5 million in the period. So thank you very much. With that, I will turn the conference back to Fernando for his final remarks.

[Fernando Biancardi Cirne, executive]

Thank you, Rafael. This is Fernando Cirne again. And I'd like to talk a little bit about where LWSA is focusing our efforts. Starting with profitability gains, we have been focusing on growing our profitability in our acquired operations and that's what we'll continue to do for quite some time. Now how do we see this gains in profitability? First of all, with operational leverage, this is the group of companies that's been growing the most within LWSA. Working also on strong cost control. Fortunately, I mean, the good news is we have been able to bring in the same volume of clients with the same CAC, so we do not have an increase in acquisition costs. We have also consolidated several of our operations, which makes it easy or easier for our clients to understand our brands and also brings in cost savings. And finally, many operational synergies have been realized. So with a strong cost control and cost reduction, which has been responsible for this growing margins. And this is a process we plan to continue. Next, we have a cash generation that has outgrown the company's EBITDA. And this shows mostly the group's reduced CapEx, which is another very important aspect. And lastly, growing our revenue with efforts that require low investment or has little impact on our margins. And the quarter-over-quarter growth that we've stressed in this presentation is already showing some results of that strategy. Starting with Wake. Wake started its trend this year. I mean it's a little under 6 months old, even though the work had begun a long time ago. We already had that platform for a while, but Wake has been creating a lot of buzz in the market. It's very well known. And I think we have a legacy that's been very well built. I think this is our main achievement for this year. I think that we're showing a very interesting path for Wake moving forward. In Financial Services, we brought a new executive who has been spearheading some very interesting efforts for next year. This is a side of the business that shows great, promising potential. We have also made great strides in, for example, payments and logistics, which has been growing very significantly in cross-selling. When it comes to M&A, the company is now looking more than ever very carefully at inorganic growth. Naturally, today, that look includes more careful drivers seeing as we already have a more well-rounded environment currently. So we might be looking at indicators, for example, beside -- companies with the size that could move the needle of Locaweb companies that already show significant results or with a more consolidated operation. But this is definitely a front that we are paying a lot of attention to within the company. And lastly, our work in pricing. This is a work that's shown great results already with Melhor Envio, especially and also e-commerce platforms is a side of the business that will require great work, showing also a high potential of bringing higher earnings. This is work that is already showing impacts on Q4 and will most definitely have a substantial impact on the company's results next year. So this is what we had. I'd like to thank everyone for joining us for this call. And I will now turn -- we will now begin our Q&A. Thank you.

[Gracielle M., executive]

Thank you, Fernando. Our first question comes from Lucas Chaves with UBS.

[Lucas Chaves, analyst]

Well, I have just one question really focusing on Q4. How should we think about the results in Q4? And how will Melhor Envio factor into that considering Q4?

[Fernando Biancardi Cirne, executive]

Lucas, this is Fernando speaking. All right. So let me talk a little bit about Q4, and then I'll have Willians talk a little bit more about Melhor Envio. Throughout this call and in our earnings report, we made it a point to stress how much growth has accelerated quarter-over-quarter. So the commerce segment, for example, in Q3 versus Q2 -- in Q1 versus Q2, we grew 5%. And in Q2 to Q3, we grew 7%. So I think that's significant growth. That, I think, sheds light on to what we expect Q4 to look like, even considering that this is a quarter where we'll have Black Friday and the holidays. And that's even considering that Brazil's economy is not looking wonderful. But that already mirrors Locaweb's efforts to try to grow what we -- or the avenues for growth that we're using to move forward regardless of the economy. As I said before, we can't wait for the economy to pick up and respond. So we have to work, and we're seeing that -- the results of that between Q2 and Q3. So we feel very confident about what the Q4 results will look like. On that note, I'd like to turn it over to Willians to talk about what's been going on with Melhor Envio, what's the scenario there and what the impact of that operation will be for Q4. Willians?

[Willians Marques, executive]

Thank you, Fernando, and thank you, Lucas, for the question, giving me the opportunity to talk a little bit about logistics. Melhor Envio has shown great results. It's grown 24% this quarter versus 1 year ago. And we talk a lot about repricing, but actually, there's a much wider technological development scenario behind that. Melhor Envio has included great efforts in improving the product. And even when we talk about pricing, that allowed us to create intelligence by type of client, by destination, all of which has helped to maximize our revenue. The volume of shipments has increased, and the company has really maximized its results. But behind that improved performance, there's been a lot of technological improvement. And that has also allowed us to tap into several other transportation companies. We've included 2 or 3 new ones. The last of them is a new -- has a new operation in Brazil. It's coming from China with a lot of knowledge and very competitive prices. And when we add a new transportation company like this one, there's also an increase in our cargo profile because it adds competitiveness where -- in places where Loca -- where LWSA was not working so strongly. And with that comes an increment in revenue. So in addition to increasing our competitive edge in terms of end customer price, there are also better margins for that product. So the pricing intelligence in terms of increasing transportation layers has allowed us to grow that way. So our prospects for Q4 are extremely positive. We cannot give any guidance here, but we are very excited, and we feel prepared for the sheer volume we might be seeing. We have several integrations with different platforms and also growing within the group. This has been a constant agenda and we have been adding that in a more intensive way to everything that we do. And I think that all of that will be captured in Q4 considering Christmas and Black Friday. In Q4, even considering the number of products that we have embedded that are about to be rolled up as well as reverse logistics, especially during sales seasons such as Black Friday and Christmas where we see several returns. So we are also trying to seek for revenue increase in product returns during the season. So all of that gives us a lot of confidence in Melhor Envio. This is a company that's running in a positive scenario when it comes to its EBITDA and it shows very promise or shows a lot of promise. We are very excited about Q4.

[Gracielle M., executive]

Our next question comes from Fred Mendes with Bank of America.

[Frederico Mendes, analyst]

I also have 2 short questions. The first one is just to understand the strategy a little bit better. As we understood and we might have misunderstood it, but you had a more auspicious pricing trend in Tray. And when we look at this quarter, it's come down a little. So of course, we're talking about tech. So we're always in a trial and error mode. But is that what explains this dip in Tray or is there anything else behind that maybe something we might not be seeing on this step? And the second also looking at Commerce, Chamas has already mentioned that there's a dramatic seasonal effect on your margins, but with 6 points difference and also we see acquired operations doing a lot better. So I don't know if maybe with Tray doing better and maybe there might have been some cannibalization with the newly acquired companies or are they completely different beasts. Is anything like that?

[Fernando Biancardi Cirne, executive]

Fred, thank you again. Thank you for your questions. I will start by taking your second one, and then I'll turn it over to Cassius and Willians to take your other one. So let's talk about the margins for commerce. Yes, there has been a decrease. And we've always said that in commerce, we need to work with margins between 34% and 35%. So we've had outliers going up, but we always say that 34% to 35% is our target. But there has really been a dip from 34% and 35% to 32%. That's a fact. Now where is that coming from? Well, it's actually not coming from Tray. Tray did not helped to reduce that margins, and we will be hearing a little bit more about that, but that's still a valid question. That decrease compared to what we would have as a target from between 34% and 35% to 32% comes from the decrease in the payment chain, which is now being pressured by new payment possibilities coming in. That's what happened. And there are ways, and we're working on them to reverse that. I don't think that will be that complex. We have efforts underway to reverse that and we expect that to take place in the next few quarters in a rather easy way. So again, this was the effect of a decrease in the margins of organic growth. I will now turn it over to Cassius. Cassius is our new Financial Services VP, and he'll explain to you how we'll be working on recovering the margins for our payment operations, which has been the -- which has been to blame for that dip in our margins. And then we'll be talking a little bit about Tray as well with Rafael. So let's start by talking about margin. So please, Cassius and Willians, you may pick and choose whoever goes first. You may go first, Cassius. I'll follow you then.

[Cassius Schymura, executive]

All right. Good morning, everyone. This is my first conference with LWSA. The issue of payment margins, as was said earlier, showed an impact from the increase in costs of the payment company chain. I've been with the company for now 3 months, and we have been able to pinpoint many different opportunities in terms of pricing and commercial initiatives, also initiatives relating to volume as well as structure to turn that around. So this is something that really did happen, but we've already assessed and already have a plan in place to address it.

[Rafael Chamas Alves, executive]

All right. Thank you, Cassius, and thank you for the question, Fred. Well, talking about Tray, it really was a matter of seasonal effects. In the first few quarters -- or the first few weeks of the quarter is when we saw that. And over the quarter, a few adjustments were made. So we had very positive negotiations and on some instances, we allowed the client to have some respite in a few cases. But we have very good prospects moving forward. But really this quarter slightly underperformed, especially because of the repricing and adjustment in some contracts as well as the seasonal aspect where -- I mean, we're seeing the GMV for marketplaces has been growing a little bit more slowly. And that's been the same for the entire market. Now what's a positive thing that we see for Tray is the performance of new or owned channels. So our customers are growing more of their sales with their own channels, which is something that we do not see for the results of Tray. We have logistics, for example, but when we look at Tray per se, it's only a partial result. The effect of our clients selling more with their own stores within Tray, that increases our margin. So when we talk about our prospects for Q4, what we want is to recover those margins and we believe that we are coming into Q4 with all of our contracts with their adjustments in place, capturing more revenue on GMV from the own stores. So that's not something to worry about. This is really one-off, very much related to those 2 aspects and the prospects for Q4 are bright as can be. And when you look at Tray exclusively, there's also been a change in the acquisition profile with a slightly lower number of clients in Tray moving them to [ Wave ], which is also part of our SMB platform, which has been growing increasingly year-over-year. So Tray does not really represent all of our platform structure because we want to classify customers or clients in Tray with a slightly larger profile than what we had before. So we have been working with that mix of client acquisition. And when you look at our platform, our SMB platform as a whole, with both brands, we see that we have very good prospects for the rest of the year.

[Frederico Mendes, analyst]

All right. That was perfect everyone. Very clear. If I could just follow up the Q4 aspect of things. When we looked at the results for this quarter, at least from our perspective, the prospect was a little bit better and it felt like by the end of the quarter, the market turned down a little bit. But now we're hearing -- from what we're hearing from you, the prospect is for a strong Q4. So this was a dip, and it's now recovering. Is that how we should read Q3? Or was it -- was performance sort of steady throughout the quarter and you're now seeing an improvement at the beginning of Q4?

[Fernando Biancardi Cirne, executive]

Well, Fred, this is what I would say. The market has not improved yet. The economy is not doing well. It's more about the extra mile that we've run. For example, in revenue, there was a larger impact this quarter. And some of that is an effect of Wake. But I think it's more about the efforts that we've made to shift that curve, the basis for comparison established in 2022 was extremely high. We grew by nearly 20 -- 90% in e-commerce. So it's difficult to see that in Wave. So that's why we are focusing more on quarter-over-quarter results. The plus 5% result that we mentioned between Q2 and Q3, or Q1 to Q2 and now 7% between Q2 and Q3 is something that you cannot see in the year-over-year results. So we do expect that improvement to continue in Q4. So we are more optimistic about Q4 than we were in the previous quarter. So that is a very accurate analysis.

[Gracielle M., executive]

Our next question comes with Marcelo with JP.

[Marcelo Santos, analyst]

I also have 2 questions. I wanted to dig a little bit deeper in the change in BeOnline/SaaS margins. It was running around 22% and has now dipped to closer to 18%. And when we look at the organic side of the operation, that hasn't decreased that much. I just wanted to understand what caused that sequence of decreases in those margins? And second, if you could please talk a little bit about your internationalization strategy? We heard your announcement of Bling's launch in Mexico. How do you see that moving forward? Do you plan to bring other products as well? And has that affected your profitability this quarter?

[Higor de Araújo Franco, executive]

Well, here's the thing, Marcelo. When we look at the margins as a gross system, I ultimately used this margin that I used in my results. And you see that the margins have been steady. This was, yes, a business that was running at 17% or 18%. But in the last 4 or 3 quarters, that's run close to 22% or 23%, which is where we believe these margins are likely to stabilize. The entire move that we had on the corporate side starting more than a year ago had that as a purpose. I mean we had a pressure that was a bit more pressured with growing risk. And this had never been the focus of the company. It was mostly because of the upsell strategy that we had developed before. So what the company chose was to discontinue these operations or shrink them by some extent, at least as sustainable as it could be. And our online size has always been one that really affected our initial M&A move. So we wanted to focus again or refocus on growth as opposed to -- on profitability as opposed to growth. So from a time perspective, what we see moving forward is the contraction in this operation comes to an end. And we plan to keep the business on these levels that we believe are healthy for the company, considering the portfolios we're working today.

[Fernando Biancardi Cirne, executive]

I will continue to talk about internationalization here, Marcelo. This is Cirne speaking. What was our plan for Bling in Mexico? Today, Bling is perhaps one of the main, if not the main, supplier of products to shelves of marketplaces across Brazil. And I mean, products that are being sold. So without naming names, for a few marketplaces, this accounts for over 20% of their sales. So Bling is extremely powerful for marketplaces as a source of product. And Mexico is a country that's heavily dependent on marketplaces for its sales that reaches the 50 percentile of their sales. And the way Bling is built, that makes it a lot easier for us to internationalize the product. And I mean by engineering even that really makes it less expensive for us. So we started organizing that 6 months ago and the investment was very, very small. So in addition to that, the sale of Bling was a low touch one, so very low investment and strong contribution for marketplace. So that's what led our decision to move to Mexico. We currently have only 2 people working on Bling Mexico. The rest shares the structure we have in Brazil. So a very low investment and great contribution to marketplace. Do we have plans to invest more? For the time being, not really. Now why is that? The Brazilian market is still a huge one. We're talking about a market with 11% e-commerce penetration. Our focus is still Brazil. We wanted to ride the marketplace wave in Mexico. And currently, our growth avenues focus on France that require little investment. Any product we might want to take to Mexico will require more investment, which is your point. So we will not be investing on opening new fronts in other countries so as to eat into our margins. This was a very one-off venture that we were confident would not be eating into our margins. So this is still not moving the revenue needle. It's still very incipient. We're still learning how to sell there. We're still testing the waters in that market. So we might see some small results for 2024 and that's it.

[Higor de Araújo Franco, executive]

Now Marcelo, if I could just jump in and add to the first question. This is Higor from BeOnline/SaaS. And this is just to add to the initial response. One important thing that we should imagine when looking at the online operation is when you compare year-to-date in '22 and the year-to-date in '23, and you have that information in our earnings report on Page 6, you will see that both for gross margins and EBITDA, there are increments when looking at the YTD results. So this result that we mentioned or we have been mentioning for a few calls, this migration in contracts and even cancellation of contracts for the sake of margins has led to an increase in medium- to long-term margins, which is very positive for us. So obviously, these moves may take place for any number of reasons. But when you look at a wider front, that's more of our focus. And that's always what we have in mind for these operations. There is a very interesting increment in our margins. So I just wanted to add that to give you a better idea of what Rafael was talking about.

[Gracielle M., executive]

Our next question comes Thiago Fragoso (sic) [ Thiago Kapulskis ] with Itaú.

[Thiago Kapulskis, analyst]

Hello, everyone. Can you all hear me well?

[Gracielle M., executive]

We can hear you, move -- go ahead.

[Thiago Kapulskis, analyst]

I also have 2 questions, even though many of the points I wanted to discuss have already been addressed. I think that my first point was I wanted to explore a little bit more something. I think you've talked a lot about many points touching on your margins and cost control. But for us, the earn-outs issue is still something that stands out, especially when you look at the BRL 22 million this quarter and also the lack of visibility to model these earn-outs and try to understand how cash generation for shareholders will take place. If you could please add some more color in terms of what we could expect for these earn-outs? Should we see further reviews increasing them? And if you could talk about the rationale? I mean why are these figures going up? What companies are over delivering? To explain these increases, I think that would really help us. And also I understand that the macro situation is a heavy aspect, but I mean you've explored a little bit of what Q4 will look like. But if you could please talk a little bit more about more specific prospects for Black Friday? For example, the facts say that we do not have a World Cup this year, something that helps or something that is not helping because some company says that does help in some says, it does not. So if you could please add any detail in that regard, that would be very helpful.

[Rafael Chamas Alves, executive]

Hello. This is Rafael speaking. So with regard to earn-outs, there hasn't been any review in earn-out figures. I'm going to give you a little bit of the background until I get to Q3. And we did talk a lot about this in Q3, where there was a review until then there were many questions. But despite the company's policy in terms of earn-out review is very well-established and formalized with auditing companies. Our position -- our written position did not include all the details. But going back to the details of this policy, we will review earn-outs or we do review these earn-outs every 6 months. And they are modeled in such a way that they can be reviewed by performance. So these are not static figures. Once targets are achieved, those figures are released. It does rely on performance and cross-selling, but we always believed within our M&A strategy that this was the best way to create incentives where both parties were on the same page, both buyers and sellers because if on the one hand, it gives sellers the companies we're bringing in-house a trend where capturing synergies might be very beneficial in terms of price. So to the value that the seller is bringing in with their prices and for the company, it's a way to encourage synergies. This is one of the main reasons behind our M&A. We do not bring companies in to grow our revenue, but rather to build a complex ecosystem that will protect us both from the competition and the leverage that we have over the competition that we acquired. And it's also a very interesting way to protect our shareholders because it allows us to pay valuations to create -- return the logic of return on invested capital in a strategy where the price is not leveraged. So when you -- when we purchase a SaaS company, we see a very positive trend in that sense. Now having that on the table, obviously, what's on our liability is always an estimate, an estimate that's initially recorded based on a third-party opinion, which is reviewed by several different entities. So this is not just the company's -- the result of the company's modeling. And every 6 months, we review them using even another third party to review them and correct those estimates. So obviously, that adds some volatility to our balance sheet, which is something that's inherent to any M&A. That being said, the last review we had was the one that we had midyear. The impact you see on our results right now is exclusively because of a correction for interest, a monetary correction because we always correct those earn-outs, bringing them to present value. And that's usually because we're talking about comparable positions in terms of cash position, but there has been no real adjustment, no real change. So to your question, we projected this at middle of the year, was considering the best estimates we had for these companies performance. By then, considering that our liability will be settled based on 2023 results, so we'd be exposed to a longer time horizon, about 30% of our liability which adds less variability to the figures that we had recorded. We believe that what's been recorded for the companies in 2023 is very close to the fair value. Of course, some variation will be seen, but at the company, we're not expecting any material change from that figure. I apologize for the technical answer, but I met your service if there's any other question.

[Thiago Kapulskis, analyst]

No, that was extremely clear.

[Rafael Chamas Alves, executive]

Just another point and takes it back to Fabio's (sic) [ Thiago's ] question so the BRL 22 million were adjusted because of interest essentially. Yes, mostly, yes. There is some withholding value, but essentially, we're talking about that type of correction.

[Fernando Biancardi Cirne, executive]

This is Fernando speaking. Now I'm going to have Cassius and Gil to talk about your second question in terms of Black Friday and how much the World Cup event or the lack of one affects our operations. So Alessandro may talk about the Wake prospects and the SMB prospects as well.

[Alessandro Gil, executive]

Well, good morning, everyone. I will start by talking about the World Cup. This may be the easier question. There are different impacts for different segments. The -- in the sports and apparel industry is more positive. CPG also sees positive results. But for the rest, long gone is the time when you would buy a new TV set to watch the World Cup. So ultimately, the most valuable time our consumers have is time, and that includes both the time to purchase and the time to watch the World Cup game. So most other departments are not that heavily -- or positively impacted by the World Cup. Now looking a little bit more at Q4 now that Black Friday is approaching, Black Friday is no longer an event focused on the turn of the last Thursday of the month to the last Friday of the month. Obviously, this is still a very important period, but throughout November, promotional sales are spread out even as a strategy by sellers to ensure that the clients buy more. I am, to a certain extent, optimistic even though paraphrasing what Fernando said a few minutes ago, the market is still very much rigid. We saw a not very positive performance in Q3, but in Q4, we are already seeing an end cling of better performance. There's an area of positivity, but we still need to see what things will look like by the end of the month so that we can be more confident in that.

[Thiago Kapulskis, analyst]

That was excellent.

[Cassius Schymura, executive]

Just wanted to add with the SMB view and I would like to reinforce what Alessandro said. The World Cup is a distraction. So this is a positive aspect for this year because we do not have one. And we also see that being impacted or that impacting the smaller companies with more focus and a better chance to organize. Again, the market is very stiff. There's not as much growth as before, but compared to last year because we do not have those distractions, Black Friday might be more productive and also the fact that sales are not so focused on that Friday -- Thursday to Friday that also helps as Alessandro said.

[Gracielle M., executive]

Next question comes from Mr. Gabriel Gusan with Citibank.

[Gabriel Gusan, analyst]

I have a few questions. The first one is about the change in your corporate name or your brand name, but the operational brands, so to speak, are still with the same brands and the same colors without much of a reference to the group. And I wanted to understand why is that. And the second question, I just wanted to understand the pressure that you were seeing from payment companies. Was that because of the cost pass-through? What exactly happened that affected your performance?

[Fernando Biancardi Cirne, executive]

Thank you, Gabriel. I'm going to talk a little bit about the brand name and then turn over to Cassius who'll address the payment company chain -- the chain of payment companies. Well, the brands of our companies within the group remain the same, but they will now all be sponsored by LWSA. That's what changes. It was a bit difficult for us to be that sponsor with Locaweb because people might confuse with the hosting service. So you had to BeOnline with Locaweb and the Locaweb company parent company. So the parent company name and the BeOnline company were sort of conflated. Now without Locaweb company as the group name, we might have LWSA sponsoring all of our brands. So it will be, say, Tray, a company from LWSA group. Locaweb, the hosting company itself will now be a company of the LWSA Group. So what's behind the change is being able to endorse all the LWSA companies. And it also helps the client understand that this is a group and it even helps the cross-selling process. That's the idea, Gabriel. I will now turn it over to Cassius who will be talking a little bit about the effect of the increased costs within the chain of payment companies.

[Cassius Schymura, executive]

Thank you for your question, Gabriel. We did see a direct impact from the increase in costs relative to NPRs, as we call them. Now based on that analysis, these costs have been absorbed. We have made our calculations and initiatives in Q3. And we will now deploy an action plan to offset the effect on prices. There were also impacts on the assortment by company size. There was an increase in volume of lower price and wider margins, also installment payments. So we understood that assortment issue and also the cost increase, and we will now be putting or taking steps to really address that issue.

[Gracielle M., executive]

I will now turn over to Fernando for the company's final remarks. Fernando, you may proceed.

[Fernando Biancardi Cirne, executive]

Well, first of all, I'd like to thank everyone for joining us. I thank the analysts who sent us the questions that really helped everyone understand our results. I'd like to thank our associates and also our clients. They are the key to our operations. So thank you so much, and we'll see you next time. Bye-bye.