Uniao Pet Participacoes (AUAU3) Q2 2024 earnings summary

Executive summary

• Announced definitive merger agreement between two leading pet retail companies, creating the largest integrated pet ecosystem in Brazil, pending regulatory and shareholder approval.

• Gross revenue grew 3.8% year-over-year to R$980.9 million in 2Q24, driven by digital channel expansion and customer acquisition initiatives.

• Digital channel revenue surged 29.2% year-over-year, now representing 44.4% of total gross revenue, with omnichannel sales accounting for 94% of digital sales.

• Adjusted EBITDA declined 14.4% year-over-year to R$59.9 million, with margin at 6.1% of gross revenue, impacted by higher digital penetration and lower operational leverage.

• Leadership will include Paulo Nassar as CEO and Sergio Zimerman as Chairman, with a balanced board and governance structure.

Significant events and developments

• Merger terms include a 52.6% stake for Petz shareholders and 47.4% for Cobasi shareholders, with a BRL 400 million cash component split between closing and extraordinary dividends.

• Mark-to-market of derivative (swap) on dollar financing caused a non-cash negative impact of R$12.4 million in 2Q24.

• Share buybacks in 2023 contributed to an increase in net debt by R$50.1 million.

• Store network expanded to 252 units, with three new openings in 2Q24 and 44% of stores yet to reach maturity.

• The merger aims to maximize synergies, optimize tax conditions, and enhance shareholder value, with McKinsey engaged for integration planning.

Financial highlights

• Gross profit reached R$383.0 million (+2.1% y/y), with a gross margin of 39.0% (down 0.6 p.p. y/y, stable sequentially).

• Adjusted net income dropped 79.8% year-over-year to R$5.0 million, reflecting increased depreciation, amortization, and financial expenses.

• Free cash flow was negative at R$12.1 million in 2Q24, with operating cash flow of R$52.9 million.

• Net debt stood at R$10.7 million, with leverage at 0.0x LTM Adjusted EBITDA.

• Total investments in 2Q24 were R$39.9 million, down 35.4% y/y, focused on new stores, technology, and renovations.