Q2 2023 Zenvia Inc Earnings Call

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Speaker 2: Now, I would like to welcome one of our speakers for today, Mr. Casio Babcen, founder and CEO . Sir, the floor is yours.

Speaker 3: Hello everyone and thank you for joining us at Zenvia's second quarter 23 earnest call. I'm Cascio Babcim, founder and CEO . Thank you all for being with us today. Our results for the second quarter showed stability and consistency presented as we resolved our funding gap.

Speaker 3: 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 bundled packages of certain services, which is already showing positive early results.

Speaker 3: We are very excited by the ongoing evolution of our platform and its potential, and we are continuing to leverage the massive generative AI opportunity that is quickly changing our industry. In the second quarter, we unveiled two AI-powered tools to enhance the customer journey, including balances of 100 hedges for future adoption of US351X 20allowed sensors but it is also

Speaker 3: which empowers customer support representatives with easy-to-use platforms that delivers an automated report with quantitative analysis of customers' interactions.

Speaker 3: and then the chatbots, which leverage AI to deliver efficient and humanized support. We are seeing every day how AI can bring transformative results to our clients.

Speaker 3: Two personalized experiences predicted and as Amphibiric customer understanding, our AI forward solutions directly feel all kinds of businesses.

Speaker 3: We are in a new wearer where proactive is the new reactive. And with our SaaS platform, our clients are making customer loyalty and succession standard not in the restoration.

Speaker 3: I'm excited to share with you our vision moving forward, which we are calling one thing here, and that we have been discussing internally for a while now. One thing here is about creating a new world of experiences through an integrated platform, allowing us to continue our focus and capture sensors and improving the value proposition of our platform.

Speaker 3: The one-zentivision is based on uniting the three most important factors in customer experience, a fluid experience, an engaging experience and a personal experience.

Speaker 3: We will push fluid expresses by selling your products in a suite format, allowing your customers to pick and choose which products best fit their needs, and thereby, expanding our positioning while operating a large volume with ease. Our existing swirling is already aligned with the suite format. We have been evolving as an integrated SaaS platform.

Speaker 3: We'll continue to build engaging experiences by leveraging AI, which, as I just explained, is rapidly changing the customer experience arena. Not only will AI continue to enhance the customer journey, but will also improve our internal processes, making us more efficient.

Speaker 3: 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.

Speaker 3: by expanding the integration of our platform with internal systems from our clients.

Speaker 3: To progress towards our vision of one-Z-VIP and upcoming quarters, we're constantly ready on delivering key initiatives from our strategic roadmap, including the structuring projects that do accelerate product-bounding and cross-sounding. We are very motivated by our nefocus towards one-Z-VIP and look forward to sharing more information with you in the coming months.

Speaker 3: Now I'll hand over to Shai to cover our performance in the second quarter.

Speaker 4: Thank you, Casio. Hello everyone, and thanks for being with us today. Let's start on slide five.

Speaker 4: We are happy to report that in the second quarter of 23, we focus on a resolver of funding after the year while managing the right balance between revenue growth and profitability.

Speaker 4: In finding an operator within that balance, we were able to deliver stronger margin across business lines, which led to over 9% year-over-year growth in gross profit, and an EBITDA of 15 million reais, marking four quarters in a row of positive EBITDA. And we did this despite the challenging economic environment that we continue to successfully adapt and to navigate.

Speaker 4: However, we were able to resume sequential top line growth with net revenue increasing almost 8% when compared to Q123.

Speaker 4: This better performance is explained by the recovery of volumes with certain large CPAS customers and we expect this trend to continue in the second half of the year, especially given the easier comps from lower volumes in age 2 2022.

Speaker 4: The 9% increase in gross profit added nearly 6% to our adjusted gross margin, which reached 44%.

Speaker 4: and Mohamedtan & Ulu Bancharu

Speaker 4: Let's take a look at our financial for the first half of 23.

Speaker 4: All performance in the first half of 23

Speaker 4: with solid margin across business lines leading to gross profit growth of nearly 23% year over year and gross margin expanding nearly 12% of points to 47.4%. It is important to highlight here that H122 had consolidated only two months of move desk. EBITDA in the first half of 23 was 39 million reais, up from negative 25 million reais in the first half of 22, a delta of 64 million reais.

Speaker 4: I was stronger EBITDA and better working capital management, led to solid operating cash law of 118 million reais, and both were key in solving the funding gap for this year.

Speaker 4: Now let's compare the second core of 23 to the first color of the year, which shows our progress in the first half of the year.

Speaker 4: Our SaaS business, when excluding consulting to large enterprises, we were 2% quarter over quarter. It is always important to remind you that CPSA mature business and our strategies to have it funding the expansion of our SaaS business. This is exactly what happened this quarter. Let's take a deeper look and examine how each of our businesses contribute into profitability. On this slide, you can see the breakdown of our gross profit and margin mixed by SaaS and CPS for the second quarter of 23 compared to the same period of last year. Second quarter was a challenge one in our SaaS business, specially related to large enterprise clients that use our consulting service.

Speaker 4: As the sales cycle is longer for these clients, we are still seeing impacts of the uncertainties who lived in the macro scenario in Brazil in the first months of the year.

Speaker 4: 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 course.

Speaker 4: In terms of profitability metrics, SAS Grouse Profit 4, the quota went up 1.7% a year over a year to 42 million reais from 41 million reais, translating to a gross margin of 62.2%. When looking at the six month figures, our SAS Grouse Profit went up 24.6%.

to growth with increased margin and generate cash, allowing us to invest in innovative products to escalate the SaaS business. The CPS Business delivered a solid 18% increase in growth profit own with different monetary markets.

margin and generate cash, allowing us to invest in innovative products to escalate the SaaS business. The CPS Business Delivered Assaulted 18% Increasing Gross Profit on compared to the second quarter of 22, 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 23 to the first half of 22.

When we compare the first half of 23 to the first half of 22, we see similar trends.

We can see solid performances in both businesses, with increased margins, minimal focus on profitability in Spain.

Our SaaS business reached 88 million reais in gross profit in the first half of the year, a 25% increase compared to the first half of 22, and reaching a gross margin of 65%.

which implies that 3% of the point expansion compared to the first half of 22.

Seat pass in turn delivered a solid 21% increase in gross profit when compared to the first half of 22, reaching a gross margin of 37%.

a profit 12 percentage points. Let's now look at this data in terms of way in our financial metrics.

Our SES business continues to gain momentum in annual recurring revenue, so we're going almost 240 million reais.

As I mentioned previously, the challenging environment negatively impacted our net revenue expansion, which store a 116% compared to 120% in Q222.

Our SAS services represented 35% of the total revenue as we had the boost in CPS revenues.

In terms of R Us profit, we had a 5050 split this quarter.

Let's now move to the next slide on our EBTA evolution.

As you can see in this slide, sequentially, our EBITDA declined to 15 million rise from 24 million rise in Q1.

While we expected some increase in infrastructure costs related to renewed suppliers contracts, the higher mix of CPAS and revenues combined with non-recurring costs related to 7's cost and slightly higher provisions led to some pressure inhibitor discord.

Despite that, we delivered a solid 39 million REI's EBITDA in the first half of the year.

More over as you can see the next slide.

We have now delivered four consecutive Quargas with EBITDA in positive territory. This is a direct result of the decision to pivot Zainvain to assess company and focus on improving profitability.

It has been easy, particularly given the complex microenvironment, but as you can see, I'll show you this pain off.

Our trail entailment's EBITDA is totally 72 million reais, which makes us confident in reiterating our EBITDA guidance range for this year.

Now we got the most important slide of this corner.

as it shows that we have been able to convert EBDA into cash and solve our funding gap for 2022.

This is an important milestone for us that attest to all the hard work of our humans with Z.

to grow profitability and a lot of other initiatives when they took to close the gap.

Couple with extended urinal payments and strict literary policies.

While EBITDA minus CAPEX was already enough to generate a positive 13.6 million RISE, total operating cash flow reached 118 million RISE as a result of CAPEX J exile dobrze

especially due to higher anticipation from clients and renegotiations with SMS providers to more flexible payment terms.

This working capital improvement and strong operating cash flow allow us to pay down that and so we are funding effort 2023

During SNAB, a position to continue the leveraging balance sheet and invest in new products.

To finish, I would just like to reiterate the guidance that previously set for 2022.

On the revenue side, we are aiming at the low end of the guidance. While for Ibita, we are confident to deliver close to the top end of the range.

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 the real 2022 investor day.

With this, we conclude our prepared remarks and we are ready to take your questions.

We will now begin to 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'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,

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Our first question comes from

Lucas Chavis.

And at least the cell side.

of Luka Web. We are now opening the audio so that you can ask your question live.

Please go ahead.

So just to look at from UBSBB 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 the time, how do we see especially the considering part of enterprises?

How do you see these large clients in pregnancy on margins on the second half? Thank you very much. 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.

I like.

a market environment that is not like pushing growth as a trend, we're able to bring new projects to these customers and the hands we expect to.

Grow on the large customers, even though the margins on large customers are not as high as margins from small customers. That's why we counterbalance growth on large customers with continuous growth of the long tail days, which brings margins of which kind of balance.

this margin profile second can get the best of both. Large customers bring lots of revenue and all that, and small customers are not so much a revenue but they counterbalanced margins, getting us a better profile.

And we're seeing these large customers getting more adoption of the whole portfolio that we launched in the last couple quarters to acquisitions and R&D. So coming from a higher presence of C-PASS and large customers we are 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. So that's what I've been investing into integrating these SaaS solutions into the whole on the core of the platform.

So we can migrate customers from pure China usage, coming from CPS, to a more softer based usage of our platform, which of course brings us the SaaS-like margins that we have.

which of course is good for the whole picture. And especially by creating more locking 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 of a time.

There is very clear main thanks.

Let me get some questions here from the system.

Can you comment more on the CPAS competitive environment and if the improvement is sustainable moving forwards?

Sure, we see that the past industry and the CIP as a market is 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 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 face 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 carers.

which brings us a close advantage, hands to be 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 these amounts. So we expect these to continue going forward

Thanks, Kasim. If you want for you, Kasim, what do you see the company stock looking like in five years?

I'm not sure what I'm able to tell. I don't have my lawyer by my side, but as we've been working to view the long term vision and we are starting to get.

The first benefits of this movement of viewing the strong, sass layer.

comprised of solutions from different parts of the customer journey that are now being integrated.

We're starting to get lots of traction on the cross-cell and the bundling of these solutions. And in the next couple quarters, we're going to see the effects of that. As we capture all those investments in the last two to three years.

I will say beginning Q3, Q4 these year, but fully on 2024 and on. We expected the next five 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 for the market that we are building as an agent to become the leader in customer experiences software. And that's why we understand that there's a very good opportunity for long term investors to catch that over time.

Another one here. Congrats on solving the funding gap for 23. How do you see this moving on for 24? So as we've been working hard and how can we make it so than foldable at a whole bunch of people want us to move straightoks.

to deliver strong EBITDA and cash flow, it puts us in a better situation than we were a couple of months ago. We negotiated with banks and funding alternatives.

So we are very confident that by continuing to deliver the strong results will be able to solve the funding gap not only for 24, 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 our stakeholders on this front. But as of now, we feel that we are in a much better situation than we were a couple of months ago.

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 write down no microphone at the end of your question and our operator will read your question aloud. No, I'll call you-.

guidance you would need relatively high revenue wrote in H2. How is our visibility on achieving this?

Kyra, do you want to take this? Yes, of course, of course. So as Ty said, we are aiming on the low part of the guidance for revenue. For CTA's business, we have a special entity of the business. In Q4, we have a term revenue due to Black Friday and Christmas, so that he has more room for growth in the...

back on half of the year, so that's why you're gonna see a stronger when compared to the first half. And for staff business, we, as also Shai already said, we have, we already seen the pipeline for a lot of enterprise getting stronger and also you can see our results up.

our number of clients for SOTS is start to, the strong had a strong growth. So as we start small in their business and we have a strong, not revenue expansion, we, we confident that we can deliver the growth that we need in order to reach the low part of the guidance in terms of revenue.

It's Kyle. Kassio, can you give more color on the ones that you highlighted in your Openly remarks?

Sure. What was being doing the last

So, it's strategically looking at the past three years is building our SaaS layer. And that movement was a combination of a stronger investment on R&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.

So that's what we are aiming at to provide over the next couple of quarters. So we've been working on that to make it available on Q1 on Q2 next year.

And part of that is what we call in one thing. And it considers all of the projects that are being executed to make that happen. So that's the combination of integration of corporate systems, integration of the billing systems, integration of developing and developing corporate systems to be successful.

and we continue to sell the Mexico Pomo, so we're able to deliver that a unified offer for our customers.

And we are calling that movement of doing all these execution, be synchronized internally so we can provide value for our customers in a way that makes a lot of impact on the market being almost pretty much a unique offering.

for customers in the region. We are calling that movement One Zenvyet. So it's a combination of all of these projects being executed to provide a unified platform for customers.

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?

Yeah, sure. We have seen a lot of demands 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 the user

these companies' productivity, especially from sales agents or customers or service agents.

to have like pre-written responses with their customers based on customer history and the kind of demand that kind of inquiry coming from the end customers. So this is already available on our products.

And we're evolving some also around understanding what are the customer's expectations, combining not only what the customer is saying, but also the behavior of the customer around this communication and other persistent developments that have been growing

data sources that we have access to this company. So we're providing these combined insights based on this customer history. And we are seeing, and now we have all these customers stacking 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

of charging customers for that. We're seeing that a set of.

building specific modules for AI, we're putting AI in the core of the platform. So this will be part of all, all of our customers will have access to these features over time as we are rolling that out.

or all the customers. 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 one or two customers, we're 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, already into production and making that available for our customers.

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

Thank you.

Yes, of course. So what we saw is the strong growth in number of clients, special income for solution traction, and also we can see strong growth and conversion and.

service. And as we said, we start small in a small use cases, fashion decline, 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 is close to 120%.

So as we see the client 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 the number of clients growing, then the revenue to keep the pace up for the next quarter.

Can you comment the risk of the listing from NAS due to the efficiency on minimum bid price? Are you confident you will revert it? Yes, we are confident we will 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 will be able to revert it without the need of any technical solutions such as reverse splits.

Those are the questions we have here. Can you recall to see if there are any further questions?

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 write down no microphone at the end of your question. An operator will read your question aloud.

Please do you have any further questions?

There's a question here by Gabriel Cabonelli-Menezes. Can you please read?...

There are 94 million Reis on bank debt to be paid in one year plus 150 of advance of clients

plus 122 million of earnouts to be paid with only 142 on cash and 27 on adjusted EBITDA. How do you plan to solve the one-year funding gap? So again, the 150 you see advances from clients is that contracts we have with the contract of rent especially have it to either that contract is in final stages of renegotiations for 24 months. How do you plan to solve the one-year funding gap?

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 million.

adjusted because this year is going to be between 70 and 90, next year is going to be

probably 120, 130 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 to 36 months. So we are able to.

to pay all those liabilities when the company is generating higher EBITDA and obviously more cash. So, this concludes our question and answer session. I would like to turn the conference back over to Mr. Casio Bobsin for his closing remarks.

Thank you very much everybody for joining this call. We're very excited with the year going forward, especially that we aim to achieve our guidance for the year. Not only that, but looking into the future, we are very happy with the future.

path that we have and the opportunity that we have to become a very unique offering for our customers by providing a unified suite of customer experience to us 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 goal.

So thank you very much and see you next time.

The conference has now concluded. Zambia's IR area is at your disposal to answer any additional questions.

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