Zenvia Q4 2023 Earnings Call Transcript

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May 13, 2024

There are 2 speakers on the call.

Operator

Hello, everyone. I'm Cassio Babson, CEO and Founder of Sembia. Thank you for joining us at Sanjay's 4th Quarter and Full Year 2023 Earnings presentation. I would like to start by addressing the transaction that we announced in the beginning of February to solve our medium and long term funding gap. In the sense, I would like to thank everyone who was directly involved in it, our financial team, the banks, the partners for making it happen, for their commitment to our long term strategy.

Operator

I won't get into the details of the transactions. I'll leave it to Shay. But the important message here is that the full confidence that I do and we all do in this new phase of Santas expansion and that's the reason why I personally committed BRL50 million or around $10,000,000 in the company. We spent these last 3 years since our IPO building the most comprehensive CX solution for B2C companies in Latin America through a series of R and D and M and A initiatives. Xyngium is now a leading CX SaaS player offering a cutting edge customer cloud that enables B2C companies to sell more and serve better with a unified solution for automation, integration and communication across the customer journey.

Operator

We see a huge potential of cross sell and up sell for our growing customer base with this new approach. As we will dramatically simplify how customers experiment new use cases and combine all of our integrated technologies within the same interface and price plan. This evolution also puts us in a strategic position to lead CX transformation across the untapped potential of the Latin American market. In sync with this new phase, we're also unifying our business areas under a new organizational structure. As we announced a couple of days ago, a new CRO role to consolidate the former business areas we had.

Operator

To take over this role, we hired Jill Hansen, a veteran in the Brazilian software and IT scene, who formerly served as executive in Brazil's top 3 software companies, StoneLinks and Tatus. This new structure will be organized by customer segments instead of product divisions, reflecting the evolution of Cenvia's business and operating model towards a unified approach that will strengthen the company's integrated offering, opening new ways for customers to explore everything we are able to offer. Gil will also oversee 2 very important growth initiatives: the rollout of Sandia Customer Cloud to all our customers as well as our international expansion. With these movements, Luca Bazzurro and Cristiano Franco remain working at Cengen now with a renewed focus and reporting to Gilles. We expect that this enhanced organizational structure will create synergies and efficiencies between the former business units without incurring any additional costs.

Operator

We are very enthusiastic about the consolidation of our portfolio expansion strategy, which led to XANVIA Customer Cloud and all the new possibilities of profitable growth for the near future, as we 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 quarter year.

Speaker 1

Thank you, Casio. I'll start with a snapshot of our performance in 2023 compared to 2022 and also where we headed into 2024. Our revenues grew 7% year over year in 2023 to BRL808 1,000,000, translating into an adjusted gross profit increase of 15% in the period, with an adjusted gross margin of 47.4%, up by 3.40 basis points, and leading to a record normalized EBITDA of BRL76 1,000,000, close to the midpoint of the 2023 guidance range. This is a result of a balanced and profitable revenue mix that is paving the way for our future growth. We are projecting growing around 15% to 20% of our top line in 20 24 to reach between R930000000000 and R970000000, with adjusted gross margin remaining in the healthy level of between 42% to 45%.

Speaker 1

Let's now dive deeper in the results of the quarter the year. We had very strong results in terms of top line in the last quarter of 2023. Both SaaS and CPaaS expanded 2 digits. In the CPaaS business, this performance attests to the full recovery of volumes previously lost when we were better balancing growth and profitability in a competitive market. It is important to highlight here that there's a third and very important component to this equation, which is quality.

Speaker 1

Zevi is the leading CPaaS company in Brazil, and guarantees like no other the level of delivery that is expected by our clients. CPaaS revenues grew an impressive 30% in the 4th quarter, mainly with wholesalers and large enterprises. Our SaaS business also delivered a solid increase of 16% in the Q4 compared to the same period of last year, and sequentially grew 11%, which is in line with the sequential growth we had seen in Q3 of 2023. The growth in SaaS is coming mainly from SMBs, a segment that should form the cornerstone of our SaaS strategy in 2024. On a consolidated basis, revenues went up 24% in Q4 2023, bringing annual revenues up 7%, with SaaS growing 13% and CPaaS 3%.

Speaker 1

On the next slide, let's take a look on how this expansion has translated into a balanced and profitable portfolio mix. While in the 4th quarter snapshot we can see a little higher mix of CPaaS in revenues when compared to 20222023, in terms of adjusted gross profit, there was a big increase in the mix from CPaaS, attesting to the balance of volume growth and profitability that we were seeking. Especially in the Q4, when CPaaS grew 30%, its share of gross profit reached 62%, compared to 54% in the same period a year ago. The 4th quarter numbers are almost replicated in the full year picture, with SaaS reaching 37 percent of net revenues and 41 percent of adjusted gross profit, while CPaaS makes 63% of net revenues and 59% of gross profit. We are happy with this balanced and profitable portfolio of almost 13,000 active customers that trust us to take care of their customers' journey.

Speaker 1

This portfolio is already producing assessed annual recurring revenue of R250 $1,000,000 at the year end, up from R239 $1,000,000 at the end of December of 2022, mainly as a result of the M and A integration and increase in SMBs business in the period. Regarding our net revenue expansion, it was heavily impacted by the down sell in large enterprises on the consulting business related to the macroeconomic impact in 2023. We can already see a recovery with revenues up 1.5% when we compare full year 2023 to full year 2022 in this segment. Still, the down sell pool net revenue expansion down to 102%, compared to 124% in Q4 'twenty two. Even though there are already signs of improvement in the conversion of cycles to large enterprise customers, we expect most of the positive impact to be recovered only in 2024.

Speaker 1

Let's now discuss our profitability. While adjusted gross profit remained largely stable in Q4 'twenty three compared to Q4 'twenty two in the SaaS business, the margin dropped 1,000 basis points to 64.5 percent, mainly as a result of the consulting business clients that are coming back slowly and with lower margins. This was mainly offset by the CPaaS business, where adjusted gross profit went up by 40%, with adjusted gross margin also up by 380 basis points to 51.2% in Q4. Even though we have reached a good balance of volume and profitability, the higher CPaaS share in the revenue mix, by its own nature, impacts consolidated margins down, but again, these are still very healthy margins. When we look at the same picture for the year, we see adjusted gross profit expansion in both businesses, increase in adjusted gross margin of CPaaS, and a slight decrease in adjusted gross margin of SaaS, for the reasons we already discussed.

Speaker 1

It is important to remember here that given our leadership in the Brazilian SMS market and the more balanced market dynamics, we have been able to leverage a more efficient cost structure to gain market share with certain strategic large enterprise customers, which led to the strong recovery in SMS volumes with healthy profitability levels that we are reporting. We are confident that this strategy is helping us improve our relationship with expenses. Decreasing costs was one of the main goals for the company in the year, and we are happy to report that we accomplished a 13% decrease in G and A expenses in 'twenty three when compared to 'twenty two, from R147 $1,000,000 to R129 $1,000,000 a reduction of R18 $1,000,000 This brought G and A as a percentage of revenues to 16% in 'twenty three, compared to 19.5% in 'twenty two, a 3 50 basis points reduction and a key factor to boost EBITDA to record high, as we will discuss in the next slide. The record EBITDA in 'twenty three reflects all the efforts in terms of improving mix, margins, and streamlining costs. As you can see in this slide, the toll that we paid to pivot the business from CPaaS to a SaaS single customer cloud is far behind us, and we are now poised for new highs in 'twenty four and onwards.

Speaker 1

In the 2024 guidance that we have already released, we are budgeting an approximate 70% increase in our EBITDA for 2024 to reach the midpoint of the range between R120 $1,000,000 and R140 $1,000,000 Another important accomplishment that was finalized and communicated in the beginning of 20 4, but was mostly developed in 2023, was a solution for our mid- and long term funding gap, as Castillo mentioned previously. Between extension of short term debt with banks and the renegotiation of the earn out with MovieDesk and D1, including grace periods, we were able to reduce around R120 $1,000,000 in financial liabilities in 2024 extend maturities to at least December 26, bringing the new average debt term including both earn outs and bank loans to 2.8 years from 1.6 previously. Now, long term maturity loans comprise 78 percent of our debt. This was indeed a milestone for our company, and after this restructuring we are much closer to having the optimal capital structure to support our strategic objectives while maximizing shareholder value. As a subsequent event, and because of this improved capital structure, we raised additional funding with local Brazilian banks in the amount of BRL 40,000,000 by the end of April.

Speaker 1

Next, to finalize, let's discuss our guidance for both 'twenty three and 'twenty four. This chart brings a summary of how we delivered against our guidance for we which made us 3% shy on the revenue guidance for the year. In turn, we reached the high point of the range of the guidance for adjusted gross profit margin grow our where you can see we expect to grow our revenues by 15% to 20% in 2024, which is slightly below what we effectively delivered in Q4, reaching between R930 $970,000,000 $970,000,000 Adjusted gross profit margin is expected to be in line with 23 figures, between 42% 45%. In terms of EBITDA, we expect a growth of around 70%, reaching between R120 $1,000,000 and R140 $1,000,000, being the low end of the range, similar to annualizing the normalized EBITDA we delivered in Q4 'twenty three. These expectations reflect our healthy portfolio with a balanced profitable mix, streamlined internal structure and leverage under control.

Speaker 1

Thank you all for supporting 2023. We appreciate your continued trust as we move ahead. We are committed to building a profitable and exciting future for XANVIA. With this, we conclude the review of our 'twenty two results. Our Investor Relations team is available for any follow-up questions you may have.

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Earnings Conference Call
Zenvia Q4 2023
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