Zenvia Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 17, 2023

There are 7 speakers on the call.

Operator

Welcome to Xenvia's Q2 2023 Earnings Conference Call. Today's speakers are Mr. Kasio Babsin, Xantia's Founder and CEO and Mr. Shay Shore, CFO and Investor Relations Officer. Please be advised that today's conference is being recorded and a replay will be available at the company's IR website, where you can also access today's presentation.

Operator

At this time, all participants are in listen only mode. After the prepared remarks, there will be a question and answer For the Q and A session, we ask you to write down your question via the Q and A icon at the bottom of your screen. Your name will then be announced, and we'll be able to ask your questions live. At this point, a request to activate your microphone will appear on your screen. If you do not want to open your microphone live, please write down no microphone at the end of your question.

Operator

In this case, our operator will read your question aloud. Now I would like to welcome one of our speakers for today, Mr. Casio Bobcin, Founder and CEO. Sir, the floor is yours.

Speaker 1

Hello, everyone, and thank you for joining at Zevia's 2nd quarter 'twenty three earnings call and Cassio Babsin, Founder and CEO. Thank you all for being with us today. Our results for the Q2 showed stability and consistency for Sandia as we resolved our funding gap while managing the correct balance of revenue growth and profitability. We're making good progress integrating systems and platforms, allowing us to begin capitalizing on cross selling opportunities, such as selling bundle packages of certain services, which is already showing positive early results. We're very excited by the ongoing evolution of our platform and its potential, and we're continuing to leverage the massive generative AI opportunity that is quickly changing our industry.

Speaker 1

In the Q2, we unveiled 2 AI powered tools to enhance the customer journey, including Zendia Understand, which empowers customer support representatives with easy to use platform that delivers an automated report with quantitative analysis of customers' interactions and Zinda Chatbots, which leverage AI to deliver efficient humanized support. We are seeing every day How AI can bring transformative results to our clients. Through personalized experiences, predictive analysis and superior customer understanding, Our AI port solutions directly fuel our clients' businesses. We are in a new era where proactive is the new reactive. And with our SaaS platform, Our clients are making customer loyalty and satisfaction at standard and aspiration.

Speaker 1

I'm excited to share with you our vision moving forward, which we are calling OneSengria and that we have been discussing internally for a while now. OneXenvia is about creating a new world of experiences through an integrated platform, allowing us to continue our focus on capturing synergies and improving the value proposition of our platform. The one Zenvia vision is based on uniting the 3 most important factors in customer experience: a fluid experience, an engaging experience and a personal experience. We will push fluid expresses by selling your products in a suite format, allowing us customers to pick and choose which products best fit their needs and thereby expanding our position while operating a large volume with ease. Our existing strategy is already aligned with the Suite format.

Speaker 1

We have been evolving as an integrated SaaS platform. We We'll continue to build engaging experiences by leveraging AI, which as I just explained, is rapidly changing the customer experience Irina, not only will AI continue to enhance the customer journey, but to also improve our internal processes, making us more efficient. And lastly, we will leverage our competitive edge of deep understanding of customers and their behavior to provide our clients with increasingly personalized experiences through the construction of a customer data platform or CDP. This will allow us to deepen our relationships with clients by expanding the integration of our platform with internal systems from our clients. To progress towards our vision of 1 Zenith in the upcoming quarters, we are concentrating on delivering key initiatives from our strategic road map, including restructuring projects that will accelerate product bundling and cross selling.

Speaker 1

We are very motivated by our focus towards Wangzendian and look forward to sharing more information with you in the coming months. Now, I'll hand over to Shay to cover our performance in the Q2.

Speaker 2

Thank you, Casio. Hello, everyone, and thanks for being with us today. Let's start on Slide 5. We are happy to report that in the Q2 of 2023, we focused on resolving our funding gap for the year, while managing the right balance in revenue growth and profitability. In finding and operating within that balance, we were able to deliver stronger margins across business lines, which led to over 9% year over year growth in gross profit and an EBITDA of BRL15 1,000,000, marking 4 quarters in a row of positive EBITDA.

Speaker 2

And we did this despite the challenging economic environment that we continue to successfully adapt and to navigate. Total revenues dropped 5% year over year in the quarter as a result of our focus on maintaining a profitable CPaaS business. However, we were able to resume sequential top line growth, with net revenue increasing almost 8% when compared to Q1 'twenty three. This better performance is explained by the recovery of volumes with certain large CPaaS customers, and we expect this trend to continue in the second half of the year, especially given the easier comps from lower volumes in H2 2022. The 9% increase in gross profit added nearly 6 percentage points to our adjusted gross margin, which reached 44%, a testament to our full commitment and path towards profitability.

Speaker 2

Let's take a look at our financial for the first half of twenty twenty three. Our performance in the first half of twenty twenty three Largely reflects the same trends that we saw for the Q2, with solid margin across business lines leading to gross profit growth of nearly 23% year over year and gross margin expanding nearly 12 percentage points to 47.4%. It is important to highlight here that H122 consolidated only 2 months of MovieDesk. EBITDA in the first half of twenty twenty three was BRL39 million, up from negative BRL25 1,000,000 in the first half of twenty twenty two, a delta of BRL64 1,000,000. Our stronger EBITDA and better working capital management led to solid operating cash flow of BRL118 1,000,000 and both were key in solving the funding gap for this year.

Speaker 2

Now let's compare the Q2 of 'twenty three to the Q1 of the year, which shows our progress in the first half of the year. Here on this slide, you can see that sequentially, we grew revenues by 7.7%, driven mainly by recovering profitable SMS volumes from some of our large enterprise clients. Our SaaS business, when excluding consulting to large enterprises, grew 2% quarter over quarter. It is always important to remind you that CPaaS is a mature business and our strategy is to have it funding the expansion of our SaaS business. This is exactly what happened this quarter.

Speaker 2

Let's take a deeper look and examine how each of our businesses contributing to profitability. On this slide, you can see the breakdown of our gross profit and margin mix by SaaS and CPaaS for the Q2 of 2023 compared to the same period of last year. Q2 was a challenging one in our SaaS business, especially related to large enterprise clients that use our consulting services. As the sales cycle is longer for these clients, we are still seeing impacts of the uncertainties relieved in the macro scenario in Brazil in the 1st months of the year. As the economy starts to improve, we are seeing early signs of improvement in our pipeline for large enterprise clients and expect to report better figures in the coming quarters.

Speaker 2

In terms of profitability metrics, SaaS gross profit for the quarter went up 1.7% year over year to BRL42 million from BRL41 1,000,000, translating to a gross margin of 62.2%. When looking at the 6 month figures, Our SaaS gross profit went up 24.6%, mostly from revenue growth and the consolidation of MovieDesk. Our CPaaS business continues to demonstrate its potential to grow with increased margin and generate cash, allowing us to invest in innovative products to escalate the SaaS business. The CPaaS business delivered a solid 18% increase in gross profit when compared to the Q2 of 2022, reaching a gross margin of 33%, up almost 8 percentage points. Let's now look at the same data, but comparing the first half of twenty twenty three to the first half of twenty twenty two.

Speaker 2

When we compare the first half of twenty twenty three to the first half of twenty twenty two, we see similar trends. We can see solid performances in both businesses With increased margins, meaning that our focus on profitability is paying off. Our SaaS business reached BRL88 1,000,000 in gross profit in the first half of the year, a 25% increase compared to the first half of twenty twenty two and reaching a gross margin of 65%, which implies a 3 percentage point expansion compared to the first half of twenty twenty two. CPaaS, in turn, delivered a solid 21% increase in gross profit when compared to the first half of twenty twenty reaching a gross margin of 37%, up roughly 12 percentage points. Let's now look at this data in terms of weighing our financial metrics.

Speaker 2

Our SaaS business continues to gain momentum in annual recurring revenue, totaling almost BRL240 1,000,000. As I mentioned previously, the challenging environment negatively impacted our net revenue expansion, which totaled 116% compared to 120% in Q222. Our SaaS services represented 35% of the total revenue as we had a boost in CPaaS revenues. In terms of gross profit, we had a fifty-fifty split this quarter. Let's now move to the next slide on our EBITDA evolution.

Speaker 2

As you can see in this slide, Sequentially, our EBITDA declined to R15 $1,000,000 from R24 $1,000,000 in Q1. While we expected some increase in infrastructure costs related to renewed suppliers contracts the higher mix of CPaaS in revenues, combined with non recurring costs related to severance costs and slightly higher provisions, led to some pressure in EBITDA this quarter. Despite that, we delivered a solid BRL39 million EBITDA in the first half of the year. Moreover, as you can see in the next slide, we have now delivered 4 consecutive quarters with EBITDA in positive territory. This is a direct result of the decision to pivot XENV into a SaaS company and focus on improving profitability.

Speaker 2

It has not been easy, particularly given the complex macro environment, but as you can see, our strategy is paying off. Our trailing 12 months EBITDA is totaling BRL72 1,000,000, which makes us confident in reiterating our EBITDA guidance range for this year. Now we got to the most important slide of this quarter, as it shows that we have been able to convert EBITDA into cash and solve our funding gap for 2023. This is an important milestone for us that attest to all the hard work of our humans with Zee to grow profitability and a lot of other initiatives we undertook to close the gap, coupled

Speaker 3

with extended earn out payments

Speaker 2

and stricter treasury policies. While EBITDA minus CapEx was already enough to generate a positive BRL13.6 million, Total operating cash flow reached BRL118 1,000,000 as a result of better working capital management, especially due to higher anticipation from clients and renegotiation with SMS providers to more flexible payment terms. This working capital improvement and strong operating cash flow allow us to pay down debt and SOVAR funding effort 2023, putting us in a better position to continue deleveraging balance sheet and invest in new projects. To finish, I would just like to reiterate the guidance we previously set for 2023. On the revenue side, we are aiming at the low end of the guidance, while for EBITDA, we are confident to deliver close to the top end of the range.

Speaker 2

Given the positive trend we are seeing, We are confident in our ability to deliver the solid EBITDA in 2023, which puts us on track to deliver the 15% EBITDA margin mid- to long term level we presented during our 2022 Investor Day. With this, we conclude our prepared remarks and we are ready to take your questions.

Operator

We will now begin the question and answer session. Once again, For this Q and A session, we ask you to write down your question via the Q and A icon at the bottom of your screen. Your name will then be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down no microphone at the end of your question and our operator will read your question aloud.

Operator

Our first question comes from Lucas Chavez, Analyst's sell side of LukaWeb. We are now opening the audio so that you can ask your question live. Please go ahead.

Speaker 4

So Lucas from UBS, BB here. So two things, two questions from our side. How should we see the focus on large clients going to the second half of the year? And at that time, how do you see especially the consuming part of enterprises? And how do you see these large clients' impact on margins on the second half?

Speaker 4

Thank you very much.

Speaker 5

Thank you, Lucas, for the question. We always keep a very strong profile of large customers, and we are seeing that although we have more like environment, a market environment that is not like pushing Growth as a trend, we're able to bring new projects to these customers and hence we expect to grow on the large customers, even though the margins on large customers are not as high as the margins from small customers. That's why we counterbalance growth on large customers with continuous growth of the long tail base which brings margins, which kind of balance these margin profiles can get the best of both because large customers bring lots of revenue And small customers not so much of revenue, but they counterbalance margins getting us a better profile. And we are seeing these large customers getting more adoption of the whole portfolio that we launched in the last couple of quarters through acquisitions and R and D. So coming from a higher presence of CPaaS and large customers, we're now getting more presence of our SaaS solutions on these large customers, which we expect on the next couple of quarters to increase margins for large customers overall.

Speaker 5

So that's why I've been investing in to integrating these SaaS solutions into the whole on the core of the platform, so we can migrate customers from pure Channel usage coming from CPaaS show more software based usage of our platform, which of course Brings us the SaaS kind SaaS like margins that we have, which of course is good for the whole And especially by creating more lock in for these large customers as we go into more deep adoption of our platform, We're able to not only get revenues, but also sustain those margins over time.

Speaker 4

That is very clear. May thanks.

Speaker 3

Let me get some questions here from the system. Can you comment more on the CPaaS competitive environment and if the improvement is sustainable moving forward?

Speaker 5

Sure. We see that CPaaS industry and CPaaS end market It's a more competitive market than SaaS. But as we have a very strong position on the regional market, This is bringing us lots of strength to compete better than our There are other players in the market, especially global companies that try to address the same opportunity. As we've became over time the market leaders On that space, we are now leveraging that position and making that pace of growth that we're able to track over the course of this year to be sustainable over the mid- to long term As we're able to achieve better negotiations with carriers, which brings us a close advantage, Hence, we are able to position ourselves with especially with big customers with the large purchases of Massaging on the market, we're able to position ourselves as a company that is better that is able to achieve a better pricing framework in order to capture the majority of this demand. So we expect this to continue going forward.

Speaker 3

Thanks, Casio. One easy one for you, Casio. What do you see the company's stock looking like in 5 years?

Speaker 5

I'm not sure what I would be able to tell on that I don't have my lawyer by my side, but as we have been working to view the long term vision And we are starting to get the first benefits of this movement of building a very strong SaaS layer comprised of solutions from different parts Of the customer journey that are now being integrated. We are starting to get lots of traction on the cross sell and the bundling of these solutions. In the next couple of quarters, we're going to see the effects of that. So as we capture These all those investments over the last 2, 3 years, and then I would say beginning like Q3, Q4 this year, but fully on 2024 and on, we expect that the next 5 years would look awesome on that aspect of getting all the results of this strategy, which is a long term strategy that will become very clear Market that we are building Zenjet to become the leader in customer experiences software. That's why we understand that there's a very good opportunity for long term investors to catch that over time.

Speaker 3

Another one here. Congrats on solving the funding gap for 2023. How do you see this moving on for 2024? So as we've been working hard to deliver strong EBITDA and cash flow. He puts us in a better situation than we were a couple of months ago, we negotiated with banks and funding alternatives.

Speaker 3

So we are very confident that by continuing to deliver the strong results, who will be able to solve the funding gap not only for 2024, but the entire funding gap of the company, mainly arising from the Urinal structure that we have. So we are confident that we will come up with good news For all stakeholders on this front, but we don't we as of now, we feel that we are in a much better

Operator

Please use the Q and A icon at the bottom of your screen to write it down, and we will open your microphone. If you prefer not to open your microphone, please write down no microphone at the end of your question and our operator will read your question aloud.

Speaker 3

I'll continue here, Julio. In order to meet the 2022 revenue guidance, you would need relatively high revenue growth in H2. How is your visibility on achieving this? Caio, do you want to take this?

Speaker 6

Yes, of course. So as Tsai said, we are aiming on the low part of the guidance for revenue. For CPaaS business, we have a seasonality of the business. In Q4, we had a term revenue due to Black Friday and Christmas, so that give us More room for growth in the second half of the year, so that's why you're going to see a strong growth when comparing to the first half. And for SaaS business, we as also Shay already said, we have we already seen the pipeline for large enterprise getting stronger.

Speaker 6

And also you can see on our results, our number of clients for SaaS start to Strong had a strong growth. So as we start small in their business and we have a strong revenue expansion, [SPEAKER CARLOS GOMES DA SILVA:] We are confident that we can deliver the growth that we need in order to reach the low part of the guidance

Speaker 3

Kasio, can you give more color on the ones, Xavier, that you highlighted in your opening remarks?

Speaker 5

Sure. What we've been doing the last, let's say, strategically looking at over the past 3 years He is building our SaaS layer and that movement was a combination of a stronger investment on R and D And also some acquisitions that we did on companies that had complementary SaaS Offerings that are now part of our portfolio. But of course, doing so created a certain Complexity in terms of how we offer those products to our customers and how we operate the company internally. So part of the integration process that we've been doing in the last couple of quarters, started with the corporate infrastructure and organizational chart and Basic Process Integration, and which are pretty much concluded. And now we're beginning to combine all these products into a single suite.

Speaker 5

So that's what we are aiming at to provide over the next couple of quarters. So that's doing that's been we've been working on that to make it available on Q1, on Q2 next year. And part of that is what we're calling OneSignGrid. And it considers all of the projects that are being executed to make that happen. So that's a combination of integration of corporate systems, Integration of the billing systems, integration of the products, user interface and user experience, in education of business model.

Speaker 5

So everything that we've been working on over the last couple of quarters and we'll continue so In the next couple of months, we're able to deliver that unified offer for our customers. And we are calling that movement of doing all this The key should be synchronized internally so we can provide value for our customers in a way that makes a lot of a fact, a lot of impact on the market being almost pretty much a unique offering for customers in the region, we are calling that movement 1 Same Viet. So it's a combination of all these projects being executed to provide a unified platform for our customers.

Speaker 3

Can you comment on how is The large corporate interest on AI driven solution evolving. Are they demanding more solutions that are AI based? How does this impact your pricing strategy?

Speaker 5

Yes, sure. We have seen a lot of demand from companies to first, it's more of a broad search for how they can use generative AI on their processes. What we launched in the last couple of months are different features that boost These companies' productivity, especially from sales agents or customer's agents, to have like 3 written responses to their customers based on customer history and the kind of demand that kind of inquiry coming from end customers. So this is already available on our products, and we're evolving some also around understanding what are the customers' expectations, Combining not only what the customer is saying, but also the behavior of the customer around these communications and other data sources that we have access from this company. So we're providing these as combined insights based on this customer history.

Speaker 5

And we are seeing and now we have all these customers testing and some of them going into prediction on these features that use AI. In terms of how we monetize that, we are seeing that although some companies are building some extra layers of charging customers for that. We're seeing that I start off building specific modules for AI. We're putting AI and the core of the platform. So this will be part of all of our customers will have access To these features over time as we are rolling that out for all the customers.

Speaker 5

As we consider this, this will be something that we will be like a basic requirement for companies that are looking for software that will improve their sales or improve their customer service. That's why we're merging all these initiatives into the core of our SaaS offerings instead of trying to make that Accessible to just 1 or 2 customers who are making that available at the core. So we expect this to differentiate the whole platform, Considering that most competitors are still not doing that kind of approach, they're mostly testing, We're already entered into production and making that available to all of our customers.

Speaker 3

Another one here. Can you comment on the difference between acquiring new clients in SaaS and the revenue that didn't grow in the same pace. Caio?

Speaker 6

Yes, of course. So What we saw is the strong growth in number of clients, especially in terms of our solution traction and also we can see strong growth in conversion and And as we said, we start small in small use cases, especially in the client. Then When they see result, we start to grow with more use cases or more seats, and that's why our net revenue expansion for the clients that are longer than 12 months It's close to 120%. So as we see the clients start to use our solutions, then they learn, We help them learn, we help them using more use cases inside their business, so they start to grow revenue. That's why we see first The number of clients growing, then the revenue will keep the pace up for the next quarters.

Speaker 3

Can you comment the risk of delisting from Due to the efficiency on minimum bid price, are you confident to revert it? Yes, we are confident we'll be able to revert it Without needing any technical solution, it's on us to continue delivering Strong results. It's on us to be able to solve the funding gap once and for all, and that, in our opinion, will be the most important single catalyst for share price. So we are confident we'll be able to revert it without Those are the questions we have here. Hugo, can you report to see if there are any further questions?

Operator

If you prefer not to open your microphone, please write down no microphone at the end of your question and operator will read your question aloud. Please do you have any further questions? Shag, there is a question here by Gabriel Cabonelli, Meneses. Can you please read?

Speaker 3

There are BRL94,000,000 on bank debt to be paid in 1 year, plus BRL150,000,000 of advance of clients, Plus EUR 122,000,000 of earnouts to be paid, with only EUR142,000,000 on cash and EUR27,000,000 of adjusted EBITDA. How do you plan to solve the 1 year funding gap? So again, the 150 you see advances from clients is that contracts we have with the contract of revenue special we have with to Ilo. The contract is in final stages of renegotiation for 24 months, which will put us in a very good situation of only needing to pay when we are generating enough cash for that. Our EBITDA, I'm not sure that I agree with you Gabriel on the 27,000,000 Adjusted because this year is going to be between EUR 70,000,000 and EUR 90,000,000,000.

Speaker 3

Next year is going to be probably EUR 120,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 So we are confident with that. And obviously, by generating enough cash and where we are with EBITDA now, It puts us in a good situation discussing with the banks for rolling the debt for longer term and longer structure that will ease the payments in the next 24, 36 months. So we are able to pay all those liabilities when the company is generating higher EBITDA and obviously more cash.

Operator

So this concludes our question and answer session. I would like to turn the conference back over to Mr. Kasio Bobcin for his closing remarks.

Speaker 5

Thank you very much, everybody, for joining our earnings call. We're very excited with the year Going forward, especially that we aim to achieve our guidance for the year. And not only that, but looking Into the future, we are very happy with the path that we have and the opportunity that we have It's become a very unique offering for our customers by providing a unified suite of customer experience SaaS, which will become a very strong competitor in the field By bringing lots of value for customers and connecting all the dots along the journey, that's our purpose, that's what we're building for the future, And we are very happy to be on track of that. So thank you very much and see you next time.

Operator

The conference has now concluded. Zambia's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect. Have a nice day.

Powered by Quartr
Earnings Conference Call
Zenvia Q2 2023
00:00 / 00:00