Q3 2024 Zenvia Inc Earnings Call
Speaker Change: You have joined the meeting as an attendee and will be muted throughout the meeting.
Speaker Change: Good morning and thank you for standing by. Welcome to Zambia's Q3 2024 Earnings Conference Call.
Speaker Change: Today's speakers are Mr. Cassio Babsing, Zenvious founder and CEO, and Shay Chor, 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.
Speaker Change: At this time, all participants are in listen-only mode. After the prepared remarks, there will be a Q&A session. For the Q&A session, we ask you to write down your questions 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.
Speaker Change: At this point, a request to activate your microphone will appear on your screen.
Speaker Change: If you do not want to open your microphone live, please write down no microphone at the end of your question. In this case, our operator will read your question aloud. Now, I would like to welcome one of our speakers for today, Mr. Cassio Babsci, founder and CEO. Sir, the floor is yours.
Speaker Change: Hello everyone and thank you for joining us at CINFIA's 3rd quarter 2024 audience call.
I'm Cassio Babsin, Founder and CEO.
Speaker Change: Thank you all for being with us today. The highlight of this quarter was the conclusion of the strategic plan we initiated back in 2018 when we decided to evolve from a CPaaS platform to become the most comprehensive customer experience SaaS in Latin America.
Speaker Change: After a series of acquisitions held before and after RPO aimed at this goal, the official launch of Zimbia Customer Cloud in mid-October is the culmination of this vision. This was a significant milestone in our whole commitment to enhancing customer relationships through a practical and easy-to-use platform.
Speaker Change: full of AI-driven solutions and data analytics to enable brands to create experiences that are personal, engaging, and fluid, while making brands sell more and serve their customers better. This innovative platform represents Zenfia's next generation of SaaS solutions.
Speaker Change: embodying the vision of our company outlined six years ago. At the same time, its launch serves as a cornerstone for our CX SaaS strategy for the next five years.
Strategy Center on Driver-Organic Growth
Speaker Change: pursuing the optimal capital structure, unlocking and delivering sustainable value to our shareholders.
Speaker Change: Along with the launch of Zempia Customer Cloud, we also made strides this quarter in streamlining our operations and becoming more efficient, resulting in a notable year-over-year reduction in G&A expenses as a percentage of revenues that has been having a strong impact on our beta.
Speaker Change: which is the main metric that we look at in terms of measuring our profitability. I'll now hand the call over to Shay to cover our performance in the quarter and I'll be available for the Q&A.
Hello, and thanks for joining us today.
I would like to start a snapshot of our performance.
Speaker Change: We are happy to report solid numbers in both Q3 and 9 months of 24, with double-digit growth in top-line profitability, and a strong expansion of our EBITDA year-over-year, as we move to meet our guidance for 24.
Speaker Change: The results of this quarter were impacted by three main factors. First, certain one-off temporary volumes in our CEPAS segment that were opportunistic for us in terms of revenue, cash balance, and EBITDA. The flip side is that this volume comes with lower profitability in percentage terms.
Speaker Change: But at the end of the day, our goal is to generate EBITDA in Reais, not in percentage, reason why we will continue pursuing opportunities in terms of revenues. That said, we don't expect the same one-off volumes in Q4.
Speaker Change: Second, the increasing number of staff segments comes mainly from SMBs.
Speaker Change: The segment not only grew double digits on a year-over-year basis, but also on a sequential basis.
Speaker Change: And we see more and more SMBs adopting our platform, especially with the launch of the Average Customer Cloud. SMBs are the companies that will drive our growth moving forward.
Speaker Change: And third, the performance of the enterprise portion of our SaaS segment, in which we continue to see a very competitive environment with new sales below expectations and therefore putting pressure on profitability.
Speaker Change: The stronger gross profit that we reported, coupled with the strict expense control that is in place in our company, boosted our EBITDA to R$41 million in the third quarter, growing almost threefold when compared to the same period of last year, and reaching the highest quarterly level of the last three years.
Speaker Change: Year-to-date, EBITDA totaled R$98 million, up roughly 150% from the same period of last year.
Speaker Change: And if you look at the last 12 months EBITDA, it landed at R$135 million, which is within our guidance range of R$120 to R$140 million. As a reminder, we're talking about the normalized EBITDA that excludes earn-out and non-recurring events. Let's now take a closer look at performance per segment.
Speaker Change: As you can see in this slide, both SAS and CPS kept expanding by double digits in both third quarter and nine months period of 24.
Speaker Change: CPET's revenues grew 37% and reached an all-time high of almost R$200 million in the quarter, mainly because of this one-time opportunity that I just mentioned in the beginning of my remarks, taking the nine-month revenues to R$485 million.
Speaker Change: Our SaaS business delivered again an increase of 16% in the quarter compared to the same period of last year, the same rate we registered in the last quarter.
Speaker Change: This expansion came mainly from the SMBs, which is our growth engine and therefore is expected to be sharing our revenues next year. Sequentially, SAS went up a solid 12% versus Q2. In the first nine months of the year, our SAS revenues grew 15% year-over-year.
Speaker Change: Let's now take a better look at how this expansion has translated into our coach for the mix.
Speaker Change: As I mentioned in the beginning, we had a much higher participation of CEPAS in the mix of both revenue and gross profit in the period because of the one-offs factors I explained.
Speaker Change: As we always discuss here, a higher CPAS contribution to the revenue mix impacts our margin, but I would like to highlight again that the focus here was on capturing these high volumes in CPAS that are converted directly into EBITDA, given we don't need additional DNA to generate that revenue.
Speaker Change: Looking ahead, we have been investing a lot on the integration of the SaaS solution and we expect to leverage top-line growth within the customer cloud.
Speaker Change: As we move more and more into it, integrating all the businesses to the new model under Xavier Customer Cloud, the company becomes mostly a full SaaS model, with monthly subscriptions, leveraging its leadership in terms of channels.
Speaker Change: Here on this slide we discuss in more detail the adjusted gross profit and margins of both segments in the quarter.
Speaker Change: In this Q3, we recorded R$102 million in consolidated adjusted gross profit, basically half from each segment, R$50 million in SAS and R$52 million from CPAS.
Highlighting the boost from CPAT of 37% this quarter.
Speaker Change: But the margins from both segments, as you know, are not similar. We recorded a margin of 58% in SAS and 26% in CPAS.
Speaker Change: While the CPS margin remained stable, the SAS margin went down by 230 basis points year over year, mainly from the enterprise impact that I just explained.
Speaker Change: So the combination of higher CPAS in the mix with a lower SAS margin brought our consolidated adjusted ROAS margin down 230 basis points, landing at 36%.
Speaker Change: Despite that, when looking in the first nine months of the year, we are still very close to the full year guidance, as we can see in the next slide.
Speaker Change: So, looking at the 9-month numbers, we see that we recorded 296 million reais in consolidated adjusted gross profit.
Speaker Change: Boosted by the R$160 million from CPES, which went up 28% from the same period last year. The subsegment in turn contributed R$135 million, virtually the same amount from last year.
Speaker Change: The drop in the SAS margins in the quarter is explained by the mix of large enterprises with lower margins that I mentioned earlier, but also coupled with increasing infrastructure costs related to the final phase of the integration of the acquired companies that we have been highlighting since the first quarter of this year.
Speaker Change: As the CPAS mixing revenues increased due to the one-off opportunities, consolidated adjusted gross margins for the nine months reached 40.7%, putting us slightly below our guidance for the year.
Speaker Change: While management is never happy to see any number below guidance, we are much more focused on how revenues are translated into EBITDA, which is ultimately what will drive us to the leverage balance sheet. So let's discuss now our DNA, which is key to generating EBITDA.
Speaker Change: We remain laser-focused on keeping costs strictly under control throughout this whole year.
Speaker Change: We are leveraging our operations as we have been growing the top line by double digits without adding additional GNAs, which enables us to more than double our EBITDA in both periods. In fact, in the year-to-date comparison, we are bringing down our GNAs as a result of increased productivity.
Speaker Change: This led the DNA as a percentage of revenue ratio to decrease to 13% in 9 months of 24 from 17% in 9 months of 23, representing almost 400 basis points drop.
Speaker Change: If we look versus the same period in 2022, this is a drop of 540 basis points from the 18.5% ratio we recorded two years ago, when we first started our streaming line efforts.
Speaker Change: We are very proud to have been able to pivot the company this way, improving the productivity that is vital for this next phase of growth, as Cascio mentioned in his opening remarks.
Speaker Change: Moving on to the next slide, another key index that we'd like to highlight is our EBITDA minus CAPEX, which we believe is a crucial metric for assessing our ability to generate cash flow from our core operations after accounting for the necessary R&D in the business.
Speaker Change: This metric not only highlights our operational efficiency, but also helps you understand how well we are positioning ourselves to leverage some future growth, maintain financial flexibility, and reward shareholders.
Speaker Change: As you can see in this slide, in the first nine months of last year, when we deducted the capex from our EBITDA, we still saw a negative figure.
Speaker Change: small but negative. Now when we look at this nine months of 24 our EBITDA minus CAPEX improved 52 million reais when compared to a year ago and we see it now positive in almost 50 million reais.
Speaker Change: In the last 12 months, EBITDA minus CAPEX was almost R$75 million. Now, with these improvements in cash generation in mind, let's discuss some updates on our next steps.
Speaker Change: As we just saw in the previous slide, we expect that our EBITDA will keep increasing at a faster pace than our CAPEX, as it has been the case for the last two quarters. And obviously, having an EBITDA that is more aligned with our capital structure will allow us to increase our investment in client acquisition, triggering an acceleration of organic growth.
Speaker Change: We have improved our leverage a lot since we resolved EBITDA to positive territory back in late 22. Putting into numbers, we have reduced our net debt to EBITDA from that period from over 10 times to 2.2 times at the end of September 24.
Speaker Change: We believe that from the second semester of 25 on, our cash generation will be more aligned with our capital structure. Until then, we'll continue to use working capital tools as well as seeking more flexible terms in existing loans.
Speaker Change: On the Latin front, we have already initiated our expansion outside Brazil. While it is still in the early stages, we expect to see a positive impact to our 2025 results.
Speaker Change: To finalize, as we approach the end of the year, we are reiterating our guidance for 2024.
Speaker Change: Our tactics and focus have been and will continue to be on growing organically and generating EBITDA to keep the leverage in the company.
Speaker Change: Your name will then be announced and you'll be able to ask your question live. At this point, a request to activate the 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.
Speaker Change: Our first question comes from Ramon Enriquez Fonseca, analyst at Sellside UBS.
Good morning, everyone. Thank you for taking my questions.
Two from my side.
Speaker Change: First, could you please comment on how are you seeing competition in the SaaS segment, especially in large enterprises? And then...
Speaker Change: We have seen an increase in total active customers in the quarter. How much of the net additions do you attribute to the launch of Zendure Customer Cloud, please? Thank you.
Speaker Change: Thank you for a question, Ramon. So we're starting at the beginning of the question about large enterprises and competition. We launched Xenvikors McLeod, mainly focused on SMBs.
Speaker Change: Although we already have customers that are enterprise customers adopting our platform, we're still in the early days of that.
to understand how impactful will be adoption for large enterprises.
Speaker Change: But as we move with the adoption of EmpiCustomer Cloud, we see that the value proposition we're bringing to the market is quite unique.
Speaker Change: by connecting the different points on the customer journey. And that for SMBs, it makes these be the most important solution for customer relationships that these companies are using. And we are seeing that enterprises are also benefiting of that.
Speaker Change: I feel ready to understand how impactful that'd be, but we're very excited on these first large customers adopting the platform.
Speaker Change: In looking at the total active customers in the quarter, yes, we're having an increase, mainly because we're focusing on the customer cloud, as I mentioned, SMBs, and we're starting to get very good traction.
Speaker Change: for both new customers and heavier adoption of current customers. And that goes into the last part of our question, which is about the cross-selling.
Speaker Change: We are seeing that these customers, these cohorts that are already using Xendure Customer Cloud, they have around 10 times a higher cross-sell comparing to what we had before.
Speaker Change: Because before, we had to sell each of the second products that the customer would adopt would be like a new purchase from Zambia. But with Zambia Customer Cloud, we eliminated all the bureaucracy on adopting these other products.
Speaker Change: So they are a click away from adoption. So that's what we're having from 10 to 12 times.
Speaker Change: the adoption of the cross-hairing that we had before, and this is already starting to impact overall numbers.
We're in the migration phase.
from customers of our former products.
stand-alone products.
customer cloud. It's still in the first
Speaker Change: waves of migration and we're seeing that these customers, especially the ones that come from pure CPath, that goes to the third part of our questions. As we migrate customers
Speaker Change: from pure channel usage, from pure CPaaS usage to Xamarin Customer Cloud, they start using software in a couple of days.
Speaker Change: because they see the benefits of using not just the channel but all the software they're able to provide for them for marketing, for sales, for customer service and so forth and so on.
Speaker Change: So that goes into like a decrease on CPaaS customer base. We're having a migration of these customers from being like pure channel customers to software customers. And that kind of address.
Speaker Change: The whole strategy of Senevia coming from a CPaaS and turning into a SaaS company and then the customer cloud is what's making all this happen in very practical terms. That's why we're excited.
Speaker Change: for next quarters to have more impactful numbers overall of these both new customers and migrated customers using this new platform.
Let me pick some questions here from the webcast.
Speaker Change: And then to say an extension of what Kassio just said, can you share a little more details around Zambia Customer Cloud? How is the rollout going?
Speaker Change: Anything you can share on a qualitative basis, and also if there are any numbers that you can share at this stage. I'll just be upfront here and say that...
Speaker Change: We can share very little in terms of numbers as it's in very early stages.
and any number we share now.
Casio: can be polluted by being early stages. But I guess on a qualitative basis, Casio can help you understand where we are and how we see the evolution on these early stages of the Xavier Customer Cloud.
Sure, Armin, thanks for the question.
We had a pre-launch of their customer cloud in March.
and because we had just two products being combined.
Casio: into this new solution. And we had a very interesting rollout in this initial phase in March that helped us to fine-tune.
Casio: and prepare for the next phases. We launched in October officially, Denver Customer Cloud, with another four products, and then completing more parts of the customer journey.
Casio: In practical terms, we had marketing campaigns in the first phase and the sales process.
Casio: for sales reps to engage with customers on the digital channels. We had that in pre-launch in March. And then during, I'll say around July, we launched the GNI chatbot feature.
Casio: also in a pre-launch. And now in October, we launched two very important features. One is for ads optimization. Now we entered the ads portion of the journey.
And we also launched what we call Serve.
which is
Casio: A very important part of MovaDesk, the company that we acquired in 2022, is now part of Xavier Customer Cloud. That was a part of launch in October.
Casio: So now we have all these features from ads to marketing campaigns to sales processes to chatbot automation.
Casio: to customer support with ticket controls and automation, all already available for our Xenvia Customer Cloud customers.
Casio: That's why we're migrating customers from these former products into this new, unified solution. And on our roadmap, we expect to have the next couple of months.
also the more data-driven features.
Casio: going to help our customers to automate not only the customer interactions, but also different processes such as churn prevention, cross-selling.
Casio: adds optimization and multiple features that we're working on to deploy. And it will be very unique offering for the market. So that's a bit of a review of what we're working on and we are launching.
Casio: Let me keep going here and I think Kyle can answer this first part and then I'll take the second part. So three Q revenues were impacted by non-recurring and Q4 revenues usually have some seasonality. That said, how should we think of the quarter over quarter path for a CPAS and what about SAS?
Kyle: Okay, so regarding CFAS, we can expect revenue Q4 is likely
Speaker Change: below what we had in Q3. As you said, we have another incurring volumes regarding CPAS. So even though we had size analogy in Q4, we expect a slightly below revenue when we compare with Q3. Regarding size, we're still in the, with
Speaker Change: The path of growth, we expect the same or a little bit better growth that we had in Q3. So the path for SAS is the same that we've seen all of the year with growth.
Speaker Change: That's it. Yeah, and the second part, I'll take this one. Given the volumes we're having in CPAS, would it be fair to assume you are tracking ahead of guidance?
Speaker Change: No, I think that we are tracking within guidance for all the metrics.
We are again, as Cairo just mentioned.
Speaker Change: Again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down and we open your microphone live. 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 for you.
Speaker Change: I have a question here for Cassio. How deep is AI embedded in the product? Are you able to charge more for having AI capabilities?
Sure, awesome question. So we already have
Speaker Change: I would say about six or seven features, different features, that are
peer AI features. They go from co-piloting or sales improvement.
Speaker Change: quality for customer support improvement, complete my full automation of customer experiences.
who have analysis of past interactions.
Speaker Change: with customers to understand their overall perception of the brand and the relationship. We have AI being used for marketing campaigns, optimization, and that's the ones I could remember.
and we're working on several other projects.
Speaker Change: features, because it's very, very useful. It's very practical to use AI embedded in the product.
Speaker Change: And the way that we develop this model for Zenvik Customer Cloud is that we are able to capture that by volumes on customer interactions.
Speaker Change: and that's how we expect the near future to long-term monetize all these features, not by charging tokens.
Speaker Change: because we understand at some point it's going to become a commodity. But the results of that, which is how we were able to create better experiences for customers using our software.
and that is powered by AI, but not...
charged.
by the same
Wait
that these AI platforms, generally speaking, adopt.
Speaker Change: which is token-based, because we are not just providing an LLM engine.
for providing a complete AI solution that uses data.
Speaker Change: Another one here, given the expenses reduction you've been delivering, do you think at some point it could potentially impact the company's future revenue growth?
Speaker Change: Not at all. We come from a series of acquisitions and it's pretty normal that as we find synergies we're able to optimize our structure. As we are combining all our products
Speaker Change: into Zambia customer cloud. We're also optimizing the way we sell, the way we serve our customers, and that brings lots of efficiencies that can be
Organizational Structure
while at the same time we scale revenues.
because we're moving from a last optimized
operation from the combination of
Speaker Change: that helps us scale and avoid having to employ more people to do each part of the process as we get the benefits of integrating all the systems and the processes and the way we interact and serve our customers.
Speaker Change: Yeah, and I'll just add on what Castro said, we've been doing this, we've been streamlining our operations since the second half of 2022.
Speaker Change: So it's not something that came out of the blue and we are doing at once. So we've been planning this and we've been adjusting the operations through time and as Casio mentioned as we have simpler products and simpler processes that would naturally lead to discontinued reduction. So it's not we're very comfortable in the way that we've been doing this in waves.
Speaker Change: You had net income positive in the quarter. Can we expect more in the next quarter or next year?
Speaker Change: all we do is seeking to deliver value to shareholders. And delivering value to shareholders will go through P&L, right? So generating net income is something that we'll always seek.
Speaker Change: impact, positive impact in finance income from a market to market of derivative that we have. But even excluding that, we would have had a positive net income of about 8 million reais.
Speaker Change: And that is a reflection of the good results and the positive EBITDA and the healthy results that we delivered, right? So, obviously, we expect that as results improve.
Speaker Change: in EBITDA being converted into cash to help the leveraging balance sheet. So it's on us to continue delivering good results that will translate into both P&L and cash flow.
Speaker Change: Can you elaborate about guidance for 25s in terms of free cash flow of EBITDA?
Speaker Change: Unfortunately, no. At this point, we are still looking into 2024.
Speaker Change: We still have at least a month, right, Cascio, ahead of us to continue delivering results.
Speaker Change: So, although we are already planning for 2025, we are still much focused on continued delivery in 2024 and guidance for 2025 most likely at some point early next year.
Speaker Change: But which stock price would be the minimum for Xenvia with regards to use the shelf offering?
Speaker Change: We don't have a specific share price. The offering for us is viewed as an opportunistic move, so it's there. If share price and cash flow are aligned, it will make sense for us to...
execute on the on the shelf.
Speaker Change: and due to we have some limitations on how we can disclose prices and volumes but what I can tell is that it's an opportunistic move and if share price and cash flow are aligned we'll execute on the on the shelf.
Speaker Change: I think we are done here on the web. I don't know if there are any further questions on the phone.
Yes, that's it.
This concludes... I'm sorry Shay. Go ahead Hugo.
Speaker Change: This concludes our Q&A session. I would like to turn the conference back to Mr. Cassio Bobsin for his closing remarks.
Cassio Bobsin: Thank you very much for all of you guys here. We're very, very excited with the results of this quarter, especially
Cassio Bobsin: on what we're building for the future. It's an amazing experience having Zambia Cosmic Cloud performing so well. And we see the trends and the numbers and expect them to get even better in the next couple of quarters. So, see you guys next time.