Zenvia Inc. Q4 2022 Earnings Call
Speaker 1: end of the year with D1 and Movideth totally integrated into Zenvip and with earnouts already negotiated. This means we are now more than ready to fully explore the synergies that come from offering the most comprehensive CXS platform in Latin America through a full suite of products.
Speaker 1: attraction, conversion, service and success, and accelerate our growth. As we have been saying every quarter here, there is still a huge white space opportunity in the CXS market in Latin America, and we have just began to tap it. But there are also big opportunities coming from AI that I would like to discuss with you.
Speaker 1: We are at the dawn of a new era, one where generative AI will generate massive opportunities within the SaaS industry.
Speaker 1: allowing hyper-personalization, behavioral prediction and actionable insights. It is a brand new world for CX and we are very excited to be a leading player in it, as we've been already integrating chat-to-t, technology in our platform. Throughout the year we expect to drive a whole new set of automation and efficiency improvements to our platform.
Speaker 2: And thank you for being with us today.
Speaker 2: In the last quarter of 2022, we kept executing our strategy focused on balancing growth and profitability.
Speaker 2: and I can affirm that we did that.
Speaker 2: We are reporting solid evolutions on gross profit and gross margin, which allowed us to generate positive EBITDA and operating cash flow.
Speaker 2: These were indeed the best quarterly profitability metrics in Solar IPO.
Speaker 2: and the first quarter where we surpassed 100 million REI's milestone in gross profit.
Speaker 2: We did this despite the challenging and more competitive environment that we experienced not only this quarter, but most of the year.
Speaker 2: Even though our total revenue dropped 8% year over year as a result of our focus in a profitable CPaaS business, the SaaS business continues to be our growth engine, with the top-line performance expansion of 44% when comparing Q422 to Q421.
Speaker 2: Our gross profit jumped 65%, adding 26 percentage points to our adjusted gross margin that reached 58.6%.
Speaker 2: which attests to our full commitment and path towards profitability.
Speaker 2: Let's take a look at the same picture for the full year.
Speaker 2: For the year, we can see double digit growth in all metrics.
Speaker 2: We grew revenues by 24%, gross profit by 68% and gross margin by 12 percentage points.
Speaker 2: leading us to a normalized EBIT which excludes non-cash impacts from earnouts and impairment of 23.5 million REIs.
Speaker 2: This is directly related to a combination of solid SES growth and more profitable CPES, related to our focus on strict cost control and cash preservation in the ECE.
Speaker 2: Let's take a look at how each of our businesses contribute to profitability.
Speaker 2: Here on this slide you can see the breakdown of our gross profit mix by SAS and Cepas and its evolution throughout the year.
Speaker 2: We can see sequential increases in both SAS and CPAAS margins, which means that our focus on protect profitability paid off.
Speaker 2: C-Pass delivered a solid 41% sequential increase and a 62% expansion when compared to the second quarter when we started to see a more competitive environment.
Speaker 2: Our SaaS business surpassed the 50 million realized gross profit mark this quarter, an 18% sequential increase leading to 102.5 million rise in total gross profit.
Speaker 2: Comparing Q4 to Q2, the increase in gross profit was 33%.
Speaker 2: Let's now look at this data in terms of weight in our financial metrics.
Speaker 2: As we've been saying since our IPO, we are on a mission to transform Xamarin.com into a SaaS company.
Speaker 2: I'm very proud to report that our SaaS business is close to reaching a quality of both rarizing size.
Speaker 2: with the annual recurring revenue of 209 million rise in December .
Speaker 2: Net revenue expansion total 124% in Q4 compared to 123% in Q322.
Speaker 2: Even though Q4 is usually a strong quarter for CPS, because of high-holy they say it's like Black Friday and Christmas, our Sass service is represented 41% of the total revenue in the fourth quarter.
Speaker 2: A large sequence of improvements from Q2 when CES was only 29% of total.
Speaker 2: For the year, we already see 34% of our revenues coming from SAS.
Speaker 2: In terms of gross profit, we had a split result this quarter, with SAS representing 53% of gross profit for the full year.
Speaker 2: Looking ahead, long-term, we expect SAS to represent about 70% of our gross profit.
Speaker 2: We are just beginning to tap the huge white space in the SaaS market in Latin America.
Speaker 2: We are working hard and confident on our strategic planning. Let's now move to the next slide to comment on the evolution of our gross margin.
Speaker 2: On this slide, we present our gross margin evolution since the beginning of 2021.
Speaker 2: We have delivery done at promises made during our IPO.
Speaker 2: We have expanded our margin to four significantly, a double-digit expansion from both the IPO and Q2 of 2021, as well as from the same quadrilateral year.
Speaker 2: From Q1-21 to Q4-22 it's more than doubled.
Speaker 2: We reach a gross margin of almost 59% in Q4, taking the full year margin to 44% as you can see in the orange bar to the right.
Speaker 2: This is above the top range of our updated guided for the full year 2022 and yet another proof that we are walking the talk on our path to profitability.
Speaker 2: Looking ahead, it is worth noting here that we do not expect gross profit for 2023 to remain at the same leverage until 4. We will discuss this in more detail in our 2023 guidance more minutes. Let's move to the next slide.
Speaker 2: In this slide we show how organic and inorganic row contributed to 2022 revenue.
Speaker 2: The three more recently acquired companies, due one month with, as consensus data added, one hundred and fifty-six million reals to our consolidated net revenues for the year.
Speaker 2: This number compares to 41.5 million REIs in contribution in FURY 2021.
Speaker 2: when we consolidated only four months of D1, two months of sense data, and zero revenue from MovieDesk.
Speaker 2: It is worth noting that, ex-M&A, our revenues grew 5% year over year while our gross margin jumped a solid 32%.
Speaker 2: once again demonstrating the result of our strategy to focus on increasing the profitability of the more mature CPES business
Speaker 2: Let's now address our efforts on the cost side that were relevant to our full year results.
Speaker 2: As of July of last year, we have began implementing cost-care initiatives.
Speaker 2: Especially as we accelerated the integration of the acquired companies and started extracting synergies.
Speaker 2: In addition to reducing non-personnel G&A expenses such as consulting and travel, among others, we also announced in November a downsize of our corporate structure equivalent to 9% of the total workforce in Latin America.
Speaker 2: We incurred a one-time expense of 5 million REIs that was registered this quarter, mainly related to severance. Time to
Speaker 2: In turn, we expect to capture approximately 70 million REIs and reduce costs in 23 onwards, meaning 40 million REIs from the downsizing and 30 million REIs from the other cost-cutting initiatives.
Speaker 2: We have been pursuing more efficient operations in the second half of 2022 and will continue to do so constantly to improve EBITDA as demonstrated in the next slide.
Speaker 2: As a result of a very well executed strategy in a very complex environment, we recorded in the fourth quarter 23 million Reais and normalized EBITDA.
Speaker 2: evidencing the profitability of our operation.
Speaker 2: A closer look at the quarterly trend in this chart shows how our EBITDA improved quarter after quarter during their year, with Q3 putting us at break even for the first nine months of the year, WALKY 4 led us to beat our guides for 2022. During the quarter, we registered a good room impairment of 136.7 million in the SaaS business.
Speaker 2: related to the slower revenue growth in the medium and long term on the back of a more challenging micro backdrop and a higher discount rate to reflect an increased receivarist.
Speaker 2: including the non-cash impact from the Google impairment and earn-out expenses, our reported EBITDA was negative 189 million rise in the quarter and negative 214 million rise in full year.
Speaker 2: You can find a detailed EBITDA reconciliation in our financial statements.
Speaker 2: Let's see how our full 2022 EBITDA compares to historical numbers on the next slide.
Speaker 2: Here you can see the evolution of our EBITDA metric in the last five years.
Speaker 2: We are happy to see the reverse of the negative trend as a direct result of the decision to pivot Zainvier into a SaaS company.
Speaker 2: bringing this performance back to the profitability path that has always been part of the 19 years of our history.
Speaker 2: It has not been easy, especially given the complex microenvironment, but it has paid off.
Speaker 2: Both the quarterly trend we saw in the previous slide with a strong exit rate for the year and a history of delivering profitable operations shown in this slide makes us confident in our capacity to deliver not only a solid EBITDA expansion in 23, as we will discuss in a minute, but also a new record in EBITDA generation next couple of years.
Speaker 2: More than generating solid EBITDA, we have been very much focused on converting this EBITDA into cash. This slide shows that our operation generated a positive 27 million operating cash flow.
Speaker 2: This is a combination of our focus on profitability coupled with a strict working capital management, allowing us to maintain a healthy capex level to keep investing in innovation.
Speaker 2: Even after paying interest and amortising debt, our cash flow will still have been almost 10 million REI positive in this quarter.
Speaker 2: Before we move to reviewing how we did against our 2022 guidance and provide guidance for 23, I would like to quickly remind you of the agreement with the One Movie Desk and SANE's data to extend the payment agreements of the earnings, which allowed us to drastically reduce our funding gap until the end of 23, as you can see in this slide. We were able to reduce the total amount to be paid in 23 to approximately 62 million guys.
Speaker 2: down from 420 million by extending the payment schedule to the fourth quarter of 26.
Speaker 2: To finalize, let's review our 2022 performance versus guidance and discuss our expectations for 1823.
Speaker 2: This slide summarizes our 22 guidance versus actual figures.
Speaker 2: In terms of revenues, we remain within guidance ranges for all provided metrics, with CPA's closer to the low end, while SAS revenues were practically in the mid range.
Speaker 2: In turn, all profitability metrics are above guidance.
Speaker 2: Gross margin came at 44%, above the 40% with guidance, with both SAS and CPS margins also above guidance.
Speaker 2: CPS was 31% against 27 and SAS was 68% against 65 guidance.
Speaker 2: The year-over-year evolution of the gross margin was 11.7 percentage points, while above the 7.7 percentage points at the top of the range.
Speaker 2: And finally, normalized EBITDA of 23.5 million REIs that was also above our guidance of between 10 and 15 million REIs.
Speaker 2: With a solid delivery on our 2022 numbers versus guidance, we are introducing our guidance for the full year twenty-three.
Speaker 2: We expect our revenues to be between $830 and $870 million, implying a 12% top-line growth at the middle of the range. Boosted by a 30% to 42% expansion of our SaaS business, all CPAS should stay flat reflecting its more mature stage.
Speaker 2: Our gross margins will remain at a similar level compared to 22 as we expect the higher SaaS and the revenue mix should be offset by lower margins on seepass.
Speaker 2: Finally, we expect our EBITDA to be between 70 and 90 million reais, implying that our EBITDA margins should be close to 10% level, during a contract to deliver the 15% mid to long-term level that will present during our 2022 University.
Speaker 2: With this review of a solid quarter and high confidence in our BIS for 23, we conclude our prepared remarks and are ready to take your questions.
Speaker 3: We will now begin the question and answer session. Once again, for this Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you will be able to ask your question live.
Speaker 3: At this point, a request to activate your microphone will appear on your screen.
Speaker 3: 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.
Speaker 3: Our first question comes from Gabriela Morais, a self-hide analyst from Itau BBA.
Speaker 3: We are now opening the audio so that you can ask your question live. Please go ahead.
Speaker 4: Hello guys, good morning. Thank you for taking our questions. We have two points here on our side. The first one is regarding profitability. We saw an important expansion in profitability this quarter and we would like to know that besides the cutoff in workforce, what are the main other drivers are in need of?
Speaker 4: to boost the EBITDA margin in 2023. And the other question is regarding the top line dynamic is in the communication as a service type division. When do you guys expect to see some starts of improvements on the revenues growth in this segment? That's basically it guys, thank you very much.
Speaker 2: coming from all the effort that we did as of mid the year of 2022.
Speaker 2: approximately 40 million comes from personnel as we've been saying and there's about 30 million in other lines and Caio can provide some details on where these 30 million are coming from. Yeah of course. The 30 million mainly coming from the re-prioritization of our...
Speaker 5: and considering coming from also travel expenses and so on. So we did a really detailed job here on mapping all the expenses that we could cut without impacting the performance of the business. And Gabriel, I'm.
Speaker 2: Okay, so...
Speaker 2: As we've been saying for our C-Pass business, at the end of Q2 of 2022 we started to see increased competition.
Speaker 2: with some players even going to a prize that from our perspective would lead to negative profitability. So we decided to try and find the right balance between growth and profitability. So it has been a very volatile from this perspective.
Speaker 2: From what we see in the market, the second half of last year continued with strong competition. We are seeing the market less competitive in the first months of 23. In our guidance, we have embedded about flat.
Speaker 2: In terms of cpass, it will essentially fluctuate, depending on how the market behaves in terms of pricing. This is not a business where we look into.
Speaker 2: margins in terms of profitability. We look into profitability in terms of absolute REI generated because this business generates cash and this cash is the cash that we use to continue investing in expanding our SaaS business.
Speaker 2: So because we stopped looking into margin and percentage terms and start looking in absolute to realized terms, we are less concerned with how top line behaves and we are way more concerned with how much gross profit we are generating. So as long as gross profit is growing, we are going to have a better overall profit
Speaker 2: That's what we will be aiming at. That said, again, we are seeing the market in the first months of 23, behaving much better in terms of price than it was in 22. I don't know if Cai or Caso has anything from a more high level perspective to add here.
Speaker 1: Thank you, Neil. We're seeing a mark that is kept in strong pace in terms of demand for CPaaS. Although at some times it becomes more competitive, we should be able to achieve what we are focusing on, which is profitability. And that's doing pretty well, looking forward to seeing a nice...
Speaker 1: way to move into the whole year in terms of profitability from C-Pass.
Speaker 3: That's super clear guys, thank you very much. Well, the next question comes from Leonardo Olmos.
Speaker 3: Self-tight Analyst from UBS. We are now opening the audio file so that you can ask your question: life.
Speaker 3: Or I can read it here. I will read it. Hi, good morning Leonardo. Almost at UBS here. One question from my end. Please discuss the expected evolution of the shift in revenue mix. When do you expect the revenue to grow back again?
Speaker 3: and what is the new normalized growth rate we should expect from Zambia. Thank you and have a good day.
Speaker 1: the shift in the right remix and what we expect and then you can work on a couple of amounts on the
Speaker 1: expect a number. So looking, uh, or the big, uh, associated
Speaker 1: the big picture of the strategy that we're doing here. We're seeing the SaaS business that's going onto a healthy growth over the couple, these couple of quarters and we expect today's retreat to keep the same pace of healthy growth which means sustainable, not focusing on the...
Speaker 1: growth that would be very costly to achieve, but growth that can be sustained over time with healthy rates that flows to gross profit and then flows to a beta as we understand that the whole market is affecting us and the whole tech industry to generate at some point. But now we're going to...
Speaker 1: into that direction.
Speaker 1: And balance with C-Pass is the one that we look for how much we are able to achieve in terms of growth in C-Pass while considering cross-profits as Shai already mentioned.
Speaker 1: So we're seeing both businesses doing quite well, and we're seeing a very high demand. We're seeing them getting back to growth.
Speaker 1: and especially when we look at cross-profit growth. So that's the way we're driving both businesses, both parts of the business into the numbers that we pick to drive in terms of what we expect looking to it and three and forward.
Speaker 1: So, it's shy or I would compliment on the numbers, the number lies growth.
Speaker 2: Thanks Kal amazing.
Speaker 2: As we've been saying in our guidance, it is detailed in this, and there's a reason for that, right? So, as we said, our CPS business, we expect it to be flat, and again, the reason is that for that specific business.
Speaker 2: We are not concerned with how our top line grows as much as we are concerned with how our gross profit and EBITDA in cash generation evolves. So we are looking more on the CPAS business on a...
Speaker 2: gross profit and EBITDA basis than revenue growth, but you should expect it to be flat. If it goes well and as we see improved...
Speaker 2: you can assume that low single digits could be done but again at this point we would prefer to be on the safe side and wait to see if the competitive dynamics improve. As for the SAS business, we continue to see the SAS business growing.
Speaker 5: And that's the normalized level you should expect for the different businesses. The North Coyle wants to add anything to that. So, yes, of course, the important to add here is the expat growth, although it's flat, it's a pass-ready from chronic children to a full year view, it's about growth at the back-and-half of the year because of the first half of the 2022 was as strong.
Speaker 5: half for CPAS in terms of revenue and in the second half of 2022, start to feel the stronger competition. We had a little bit reduction on our CPAS revenue. We expect the growth to come back in the second half of 2023, so that's important too.
Speaker 3: and they will make me near flat, that is important to highlight that. Again, if you have a question, please use the Q&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 use the Q&A icon at the bottom of your screen.
Speaker 3: Please write down no microphone at the end of your question, and our operator will read your question aloud.
Speaker 2: Eric, I'll take your question here.
Speaker 2: do you expect to have to raise debt or equity this year to give yourself more breathing room? We are working with several different alternatives to give us breathing room and that on top of the earn-out renegotiations as we as we announced
in late last year? The answer is yes, we've been discussing with banks the possibility to extend maturity of the short-term debt that we have maturing this year and all other instruments and alternatives.
that are available to us and obviously...
we understand that there's still some funding gap and we will take all the measures and we expect to be a matter of
weeks and not months to be able to come back and
And announce to the market that we are on the right track.
to solve our short-term funding gap. There's a follow-up question on the same
which is cash flow for 2023.
If we assume 80 million Reais in EBITDA at the mid of the range of the guidance that we provided of 70 to 90, so 80 million Reais in EBITDA, we expect Carpex to be around 40-45 million Reais, so that's EBITDA minus Carpex.
close to 45 million REI's and then we have approximately 45 million REI's in interest to be paid. So that gives you an idea of cash flow expectations for 2023 and that's why we see that there is still some funding gap.
That needs to be solved within the next month. Another question here: with a strong gross profit margin reaching over 55%, why has the gross margin guidance for 2023 almost been unchanged year-over-year? Let me know.
answer this. Yes, of course, sure. So we have two reasons here. First is because of the SaaS business, we expect a little bit of reduction on margins because of the better allocation between costs and expenses for the acquired companies. So we did a really strong job.
on allocating better what is really cost and expenses. And when we are migrating some cost and expense, they'll reduce a bit of the margins when comparing to 2022 from the acquired companies, because they are smaller, they don't have the currency that needed in terms of allocation. So that's reason one. Reason two is also we do it to the market environment or CPAAT that we see and we expect a little.
Thank you, Eric. Can you check to see if we have more questions?
Yes, if you have a question, please use it to take the Q&A icon at the bottom of your screen to write it down. And we'll 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.
There's another one interesting here and I'll pass that to Casio. Would you guys add in the reports rule of 40 for Zenvia? Casio, I think it's interesting for you to discuss not only rule of 40 but all the SAS metrics that we look at in our day-to-day decisions.
Yeah, sure. We love SAS metrics and these are the ones that we apply internally to check the healthiness of the business.
looking at specifically this
this concept of combining world rate
and profit margin. As we're walking towards a path of interesting profitability, this exact number is going to have a very interesting balance in the next couple of quarters, as we are forecasting around 10% of the margin.
From twenty 24, we are seeing - I mean from the beginning of the year to the end of the year - an expected rise in this margin. We're seeing a very interesting balance of how we were able to manage this growth rate with EBITDA margins.
We do have two different businesses, which means it has the logic and comparable SaaS, which makes it a bit more difficult than three years for us to disclose, just for a portion of the business.
So that's why we and the auditing team preferred not to explicitly declare this kind of combinative metric, because it would become a bit more...
I mean, tricky to report, both two does and fast. But we do use that for us and doing pretty well on that sound.
cuss next year. Took questions on balance sheet and first 1: wal contributes to the hundred and two million increase on trade payable year-over-year.
Caio, can you take that? Yes, of course. So, in the trade table, we have mainly the carriers, the carriers that we have, that we use for CPAS, for all the methods that we use mainly in the CPAS business. And actually, we have all the products that we were using – this is our discord server
The increase comes from the twig agreement that we have because volume of twig that use our infrastructure in Brazil is increasing and so that makes our total payable to the carriers higher so that the main reason why this is...
the strable pavement is higher when compared to the last year.
Just to add here for…
clarification. Our agreement with Tuilo is for revenue anticipation, right? Tuilo pays us three months in advance so there is a positive working capital from this perspective because we get revenue from Tuilo ahead of our payment to the carriers.
So, it has been one of the tools we've been using to improve our working capital metrics.
The second question on the balance sheet is: can you explain how the liabilities from acquisition increased from 208 to 25 million sequentially? Shouldn't the payment negotiation with D one and the state of MOUs reduce the liabilities instead of increasing it?
Back to you, Kyle. Yes. No. So, the total amount should not reduce because we renegotiated the amount of payment, not in one installment, in several installments until 2026. Overall, the total amount should not reduce because we renegotiated the amount in one installment,
Payment amount of payment: cap defense. Actually, when we renegotiated, especially moving, we needed to recognize on our balance sheet the amount that was not recognized in the previous year. That's why there's an increase, but the overall amount that we should pay did not change. So, it is as expected.
So that's why the increase, the only change that we had here was on how we paid those burnouts.
The only thing that we had here was how we ATE those, those earurnnouts.
Can you provide some insight into your recent chat? Trie integration: is there strong demand from clients in general? What we're most excited about is AI integration at Changa.
on your recent chat to be integration. Is there strong demand from clients in general? What you're most excited about AI integration at same view? That's for you, Castro.
Yes, as all of you have been checking on all the evolution of generative AI, we have been working with
Microsoft and OpenAI to integrate this technology into our products. So we launched a couple weeks ago the first integration for creation of campaign content and we've been evolving into other fronts.
of how to use the generative content into the different processes of customer experiences. I would say we're seeing very interesting opportunities.
To how both sales reps and customer service agents are using our tool to be more productive with Judge DBT. Suggestions of Max SPE answer and also analysis of ongoing customer interactions to get a better review.
these interactions so you can then act on the best interest of the company and also the customer.
We also have been working into different fronts to help customers into different parts of our product usage. So we have been testing different opportunities to adopt chat TPP into the whole UX or UI.
of our platform. So there are many fronts being worked on at this time, at this moment, so we expect the next couple of weeks to release more couples to our customers. Some of them are in beta with a few customers. So we're very actually very excited because we're seeing that this technology is really practical and can really be useful right on.
as our customers are using our different solutions. And we also see demand from companies to integrate JPG into their bots or automation journeys. Now, although we understand that it's a bit of a...
I would say lots of excitement. Some of these have to take into consideration that it's a bit early to let your brand be served by a chapter to be fully automated bot.
that sometimes can get out of control, meaning it doesn't control the output 100%. That's why we're seeing that most applications would be either in a very controlled environment or to accelerate the operations for customer service.
Agents or sales reps, and of course, all other kinds of content or related processes within customer experiences overall.
So having said about some of these examples, we're looking at a big picture and it's very important evolution of the whole industry.
It's a whole CX industry being able to add this sort of tool in a very easy manner and becoming accessible for everybody. So there's lots of excitement and now we're making it work with our customers and it's doing pretty well in that sense.
So this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Kaso Boston for his closing remarks.
Thank you very much for all that's in this year. We're very happy to be, to achieve during 2022 our guidance and some points even exceed our guidance. We're looking forward to 2022-23 to have a great year, a year where we are starting to benefit from the whole.
the acquisitions that we made in the last couple of years, now fully integrated, being able to benefit from all the synergies. Our customers are very excited about all the opportunities we're being able to drive to them, not only on the AI side, but especially on the unification and integration of our solutions into becoming very clearly unified C-Access platform.
that will lead this whole evolution and transformation of the customer journey. So it'll be a great year, and thank you very much for the attention and for the time. I hope you'll see you on the next one.
The conference has now been concluded. The Q&A area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect and have a nice day.