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spk03: Good morning, everyone, and welcome to Semantics First Half 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Marcela Bretas, Semantics Chief Strategy Officer and Head of Investor Relations. Please go ahead.
spk00: Thank you. Good morning, everyone, and thanks for joining our first half of 2022 Earnings Conference Call. Joining me on the call today are Leonardo Santos, our CEO, founder, and chairman, Rebecca Federico, our general manager of WebSense, and Adriana O'Connor, our CFO. Hi, now. Everyone should have access to our earnings announcement. This announcement is also on our Investor Relations website. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These comments are based on our plans, predictions, and expectations as of today, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors outlined in our 20F that will be filed with the FTC. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for GAAP results. Please refer to our earnings release on our investor relations website for a reconciliation of GAAP to non-GAAP financial measures, as well as additional context on our key operating metrics. This call in its entirety is being webcast from our investor relations website at ir.financex.us, and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Leo. Leo, good morning.
spk01: Thank you, everyone, for joining us today on the What is the Semantic's First Earning Calls as a Public Company. For this, We are paying from us for the first time. I would like to talk a moment of introductions and mentions. Based in Brazil, with offices in Colombia, Mexico, and U.S., we are an end-to-end software as a service company that helps other companies to develop their data analytics and AI journey. We deliver our solution through a low-coach, low-touch, and cost-to-pay change approach, offering a strong competitive advantage in our view. We are the data analytics category leader in Latin America, and we are ready to accelerate growth in other regions. And as our general manager in Latin America, we will expand further on what we are and who we are in a few minutes. Before diving to our first half of 2022, main highlight, I would like to say that we are very proud of heading complete of the business combination with Alpha Capital in the beginning of August. You may have noticed that the cash from the D-SPAC transaction over total assets 2.5 times. Therefore, we are truly excited and confident about Semantic's future, and we see a multiple growth path ahead and now have the means to pursue new milestones and growing objectives. It's important to note that we expect the D-SPAC transaction to be concluded early in this year, since some regulatory problems took more time than we anticipated. In this context, Some of the replanted investments and projects end up beginning delayed. As Adriana will discuss in a few minutes, the revenues guidance we released yesterday takes the timeline change into consideration. With this as a backdrop, we still made great progress in execution, again, of the strategy and focus on our proprietary size products, which is increasing client engagement and upselling opportunities. will, at the same time, generate healthy margins for the calendar. In this first half of 2022, revenue from our proprietary products increased 25% year over year, and now represents 31% of the massive revenue mix, compared with the 24% in the same period of 2021. And underlying metrics that's highly the health of the adoption in the proprietary products in ARR. It increased 62% in June from the prior year period. We remain committed to investment in accelerating the growth of our proprietary technology. Since January, we have announced multiple releases, including the data and AI marketplace, offering a new array of the features of our users and analytics chat. which have provided users with insights of their business performance. More recently, we also added real-time and streaming capabilities to the platform that can potentially cater to $50 billion total addressable market. In the first half of 2022, we added 42 net new customers, including the leading players in the restaurant, home, and home-applied retail. segment as well as large established farm and health insurance companies. In addition, to expand our customer base, we are seeing an increase in overhead sales deal size, which we think can demonstrate that we are increasing delivering more value to our customers. Lastly, I place the two announcements over acquisition of the Zephyr Health Analytics. The additional of Zeta aligns with our inorganic growth strategy of products and market expansion and demonstrates an effective use of the proceeds for our recently business combination with our account. Zeta brings a new layer of the segmentation of the healthcare industry to our platform, in addition to importing industry database and market-approving proprietary products. In summary, we have made our entrance onto the public market backed by an incredible group of investors, and I'm pleased with the progress we have made in the very shortest window of the time since our merger closed. There is a lot of work to be done, but I'm excited about the largest and growing opportunity across our end-to-end markets, and confident in our ability to realize our growth priorities. With that, I would like to turn the call over to Andrea Federico, our general manager from Latin America, who will jump in and talk about our go-to-market strategy and achievements. Thank you, Leo, and thanks again to everyone for joining us. At the core of Semantic Strategy is a proprietary, high-capable, and end-to-end data analytics platform. offers our customers substantial ROI relative to the multi-vendor solution. We are continuously enhancing and improving the semantics data path, demonstrating to our clients that we can enable them to extract value from data in a time efficient way without having to hire a large and expensive team of experts. Extracting value from data is not a simple task. and each industry has a different level of complexity. We are determined to solve our customers' problems by providing them with plug-and-play solutions that are highly customizable. For that reason, we have designed vertical solutions within our platform containing specific big data and AI building blocks for key industries we serve. One example is the semantics data platform for house. serving hospitals, clinics, and healthcare insurance operators. With the acquisition of Zeta, we will be able to develop this vertical even further. We have a massive opportunity ahead, especially taking into consideration that we operate in markets where most companies still have a long way to go in pursuit of their data and AI journey. Our end-to-end business model gives us a competitive advantage as we can serve not only large companies, but can expand into medium and small companies more. We have built a differentiated platform and have the resources we need to accelerate our go-to-market efforts and increase brand awareness, focusing primarily on driving growth of our proprietary software. Overall, in the first half of 2022, we saw material increases in our proprietary SaaS pipeline and added several new proprietary SaaS clients. We revenue contribution from proprietary SaaS reaching a mix of 31% of total. These clients represent a diversified set of industries, such as agribusiness, the food supply chains, credit bureaus, among others, demonstrating the wide range of use cases and capabilities of our platform. Additionally, in Q2 of 2022, we have doubled the size of our sales team, materially increasing our capacity, and we are already starting to see an improvement in sales team productivity and conversion rate. which we expect to accelerate over the next several quarters. Leveraging our directives team, supported by our growth channel presence, enables us to broadly expand our reach. And by doubling down our marketing initiatives in the second half of the year, we expect the pipeline to increase even further. On that note, I'm pleased to hand over to our CFO Adriano Alcázar. Thank you, André. I would like to start by providing an overview of our financial performance in the first half of 2022 before moving on to our guidance for the full year of 2022. The total net revenue for the first half of 2022 was R$86 million, down 10% year-over-year, due primarily to an early contract termination by a single client at the end of the first half of 2021. Proprietary SaaS products grew 25% year over year, with proprietary ARR increasing 62% from June 2021 to June 2022. Growth in proprietary SaaS and ARR are completely aligned with our strategy on focusing on our proprietary software as a key growth driver. For our proprietary sales gross profit, we had an increase of 24% in the first half of 2022 compared to the first half of 2021. This reflected in our proprietary sales gross margin growth of 22 basis points. Adjusted SG&A net of merger-related costs and stock option plan grew 84% year-over-year. This increase in SG&A was expected due to investments in the company's expansions, both national and international, investments across our sales teams, and product developments, new functionalities, and focus on innovation, as well as our go-to-market strategy. These investments are already beginning to bear fruit, as evidenced by our growth in our pipeline, particularly for our proprietary products. Total net loss for a period was 86.2 million reais, compared with 23.1 million reais in the first half of 2021. Note there was no significant impact to our balance sheet from the merger completion, since it occurred a little over a month after the end of the first half of 2022. However, a big growth is expected next quarter to the cash injection of approximately 600 million reais, which would grow our total assets from 240 million reais to 840 million reais. We plan to use transaction proceeds in three main areas. First, continued investments in our products, especially proprietary products, as well as our sales team, international expansion, and go-to-market strategy. Second, we plan to engage in part of M&As, with an emphasis on searching for partners that significantly contribute to our platforms and our whole ecosystem. Third, we intend to reduce some of our company's debt. Now, I would like to discuss our outlook for the remaining of the year. As a reminder, and as Leo already mentioned, the changing time of our merger delayed investments in headcount and implementation of both market strategies. With that said, we expect our net revenue for the full year of 2022 to be between R$262 million and R$290 million, implying a growth range of 24% to 37% compared to the full year 2021. Our guidance does not assume any contribution from M&A. The first half of 2022, as well as the first couple of months of second half, were a historical period for Sematics and our whole team, as well as for all Latin America, with the IPO of the first deep tech company from Latin America in early August. We are extremely proud and excited for this new chapter of Sematics. With that, we thank you all for joining and I say back to the the operator for the Q&A.
spk03: Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press star 1-1. Please stand by while we compile the Q&A roster. Again, that's star 1-1 to ask a question. One moment for our first question. And we have a question from Rudy Kessinger with DA Davidson. Your line is open.
spk02: Great. Thanks for taking my questions, guys. On the Zeta Health acquisition, how much did you pay, and what's the expected annual revenue contribution? And Adriano, you said the revised guidance for this year doesn't include anything from M&A. So that Zeta Health acquisition, when is it expected to close as well?
spk00: So good morning, Rudy. This is Marcella here. We paid for Zeta 52 and a half million reais. And there is additional conditional payments in the future in case they reach certain milestones. We are not disclosing how much revenues exactly they will add to this year, but I would say it's very small. It would represent less than On an annualized basis, compared to where we are now, it's less than 5% of our revenues. So, it's a small acquisition. However, it adds to us from a strategic standpoint. It's very relevant because it adds capabilities for us to cater to the healthcare market, which is a large and fast-growing one. And we believe their product is really complementary to what we are offering on our data platform. So it's an important acquisition from a strategic standpoint, however, not a very large one. The transaction was signed and closed yesterday. So starting today, the company will be part of the semantics holding.
spk02: Okay, and just on that, you said represent less than 5% of, I guess, your current annualized revenue run rate. Is that the right way to think about it? Do I have that right?
spk00: Yeah, if we annualize Zeta's revenues and Symantec's revenues, it's less than 5% of the relationship. Of course, for 2022, we are only going to see a four-month contribution from Zeta Claiming Means So it's going to be less than 1% in terms of overall contribution for 2022 revenues for CMS.
spk02: Okay. Okay. Got it. And then on the reduction projections, I hear you on the delays in the investments, but just as I think about it for modeling purposes, 16 million real reduction from 290 to 274 at the midpoint is effectively all of that reduction you know, pre-closing, you gave the splits between third-party and proprietary SAS. Should I think that all of that $16 million reduction is coming out of proprietary SAS?
spk00: No. We are not providing a breakdown on our revenues guidance between proprietary SAS and third-party SAS and services, which are our three main revenue lines. But as you probably saw in the first half results, Our proprietary business has been doing well. It's been growing 25% year-on-year. What has been growing at a slower pace to the company's strategy and focus right now is third-party revenues. So the reduction in guidance is not only about proprietary SaaS.
spk02: Okay. And then on the proprietary SaaS, so for the first half, It grew 25% year-over-year, but you said that the ARR, as of the end of Q2, was up 62% year-over-year. That would obviously imply pretty substantial acceleration heading into Q3. Where, I guess, are you able to share, like, what was Q2-specific proprietary SaaS growth or – you know, what should we kind of expect in terms of proprietary SAS growth in Q3 or Q4? Is there just any other modeling points you could give?
spk01: Hi, Rudy. This is Vincent Delico, General Manager of Summit for Latin America. Good talking to you again. So for the first half, the growth in proprietary SAS is primarily comes from FTP. As we mentioned on the call, we've been pushing up the maturity of the product as well as our team has our sales team has become more and more effective in terms of pushing or taking this product to the market and this has been more and more successful we expect for second half even better result in that sense since we've been doing a lot of efforts we have been doing all the efforts in marketing All the SEOS teams, it's compensation. It's a lot focused towards our FTP. So that's what we see for second half 2022. Okay.
spk02: And then just two final ones. Just on the pipeline, you noted it's up substantially. Is there any figures you could share in terms of the growth in that pipeline over the last one, two quarters or six months? And then secondly, again, pre-close, you'd given a gross margin in EBITDA. outlook for this year. I think it was 45% gross margins and about breakeven or 1 million positive real on EBITDA. Just with the reduction in the revenue guide, how should we think about the margin outlook for the second half?
spk01: Okay, regarding pipeline, unfortunately, we cannot yet disclose any guidance. And regarding The gross margin, I'll hand over here to Adriano Caldillo, CFO. Hi, Rudy. This is Adriano Caldillo. Thank you for the question. In terms of the margin, we cannot show that, but if we would compare our product gross margin individually, we would see a proprietary gross margin increasing to very high levels and a decrease in third parties. But the point is, we recognize our revenues from third parties, We're selling all at once at the time of the deal, as well as we do with related cost revenue. With this, at the end of the day, these business line results tend to be affected by contracts duration and renewal process. And in this semester, we saw that happening, as we closed deals in two important clients in the first half of 2021, and they were still effective in the first half of 2022. So that's the scenario.
spk02: Okay, got it. That's it for me. Thanks, Zach.
spk00: Thank you, Rudy.
spk02: Thank you, Rudy.
spk03: Thank you. And I am not showing any further questions at this time. I will now turn the call back over to Leonardo Santos for any closing remarks.
spk01: Thank you, everybody. Thank you for joining us today. For us, it's an exciting moment. The company has a great future in terms of the platform. The platform right now is growing very fastly, like a Andrea mentioned is at 25% over a year in terms of the growth. We expect that it's growing more in the next few months and the year. We're very excited, me and the team, and the energy to push this market, the expansion of the platform for other markets. So thank you for joining us, and see you in the future.
spk03: Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.
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