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spk00: Good morning, everyone, and welcome to the Semantics Third Quarter 2022 Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call may be recorded. I would now like to turn the call over to Adriano Alcalde, Semantics Chief Financial Officer and Head of Investor Relations. Please go ahead.
spk02: Thank you. Good morning, everyone, and thanks for joining our third quarter 2022 earnings conference call. Joining me on the call today are Leonardo Santos, our CEO, founder and chairman, and Andrés Federico, our general manager of Latam. By now, everyone should have access to our earnings announcement. This announcement is also on our investor relations website. During this call, will 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 the number of risks and uncertainties, including the risk factors outlined in our 20F that will be filed with the SEC. Also during this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our 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. And finally, this call in its entirety is being webcast from our Investor Relations website at ir.semantics.ai. And an audio replay will be available on our website in a few hours. With that, I would like to turn the call over to Leo. Leo, good morning.
spk03: Thank you, everyone, for joining us today. I'm happy to report that Semantic has achieved its highest quarterly revenue in the company history. The 30 quarters sales reached 81 million and our sales pipeline remains healthy. Additionally, we saw a material increase in our gross margin in the 30 quarters when compared to the first half of 2022. As Adriana will comment on in a few moments. In addition to our strong results, we are very pleased with what we have achieved in the short time since our public election at the beginning of August. This includes improving our operation focus across how we build and how we go to market, building a momentum in driven increased revenue mix of our proprietary SaaS offering, driven increased operation leverage in the model adding key highs and closing the acquisition of the data. And with the arduous and complex journey to public market now fully behind us, we have shifted our attention to our singular focus, stable and consistent execution. As a data analytics category leader in Latin America, we believe we have a substantial opportunity to leverage our low-code, low-touch, and cost-efficient approach towards helping organizations develop their data analytics and AI journey. And we believe we are well-positioned to accelerate growth in the other regions. At the core of Semansky's strategy is the Semansky Data Platform, a proprietary, high-scalable, end-to-end data and AI platform which enable enterprises to extract value from data in a time-efficient way without having to hide a large and expensive team of experts. Moreover, our platform offers compelling returns of investment related to a multi-vendor approach. We remind, focus on enhancing and evolving our offering and we made further progress in the quarter. We added several new ready-to-use AI algorithms and data connectors. We also enabled customers to use Python on data transformation routines in the platform. We have also enhanced the platform design and the user experience. And I'm also pleased to announce that we instantly Heidi José Pisani to lead product development and innovation. José brings deep technical experience, having founded three companies and lead IT department at one of the most relevant online retail platforms in Brazil. We are also making progress to improve our go-to-market motion in support of our growth ambitions widely and also focus on improving sale efficiency. This involves basically such a driven increased operation focus and rigor across the go-to-market organization. But it also involved broader initiatives such as improved integration between market and sales, with also building of partner relationships. And as always, the core focus of the entire go-to-market organization and to continue to drive rapidly up the uptake of our proprietary SaaS and to grow ARR. There is much more to do on the go-to-market front, but I'm pleased with the momentum we have been building. To support how you deliver our innovation, We have made a key hire in Fabio Marcolini, who will be responsible for product implementation and delivery. Fabio brings extensive experience in the large enterprise IT environment, which includes many of Brazil's largest banks, such as Itaú and Extend. I'm also pleased to report that we made fast progress integrating Zeta during the quarter. We acquired it at the end of August to accelerate our ability to serve to the healthcare industry. With Zeta, we have grown our addressable market and are in a great position to drive a broad range of digital transformation initiatives with our data and AI platform. Healthcare is a massive greenfield opportunity for us and the need for data management and data governance improving in reaching a tipping point as increased regulation and high cost continue to challenge the healthcare industry. We have hit a ground running with Zeta and I'm looking forward to updating you on our progress in the future quarter. As we're looking toward the end of the year and at 2023, I remain confident our growth strategy and our opportunity to build a world-class data analytics business. At the same time, we are mindful of the increasing macroeconomics and certainly being felt across the tech industry and the broader global economy. we have seen some indications that customers are taking a more conservative posture with respect to investment. We continue to see healthy demand for our products. We believe that data and AI remain highly priority areas of investment and are critical to digital transformation initiatives. In fact, our solution allows our customers to increase productivity and save costs by managing their business more efficiently. We will continue to monitor the situation, both international market as well as Brazil, where economic indicators remain generally healthy. In summary, I'm very happy with the results we achieved in this quarter. Operational initiatives we are driving across the company and focusing force on our core business will allow us to more efficiently and more effectively accelerate our ability to solve complex data problems for our customers. And I'm confident that the best of Semantic is yet to come. With that, I would like to turn the call over to André Federico. our general manager for Latin America, to talk about our go-to-market motion and residency customers' wins, demonstrating the value our platform brings to the market.
spk04: Thank you, Leo. And thanks again to everyone for joining us. I would like to share a few important customer stories from this quarter that we believe illustrate the broad range of data and AI problems our platform can solve. First, an agricultural industry machine reseller in brazil chose the semantics data platform to provide its end customers with the ability to draw powerful insights from operational data including data generated by harvesters this customer will be using semantics to support farmers and their day-to-day business driving significant roi for both our customers and farmers the second customer case from the quarter I'd like to highlight is a food and beverage multinational company with annual revenue over $20 billion. We are implementing our proprietary platform at the customer's procurement office, helping them to connect with their corporate data platform. This is an important example of how adaptive our product is and gives us a sizable opportunity to grow within this specific customer. Third, a publicly traded Brazilian logistics company selected the Semantics Data Platform for its entire data journey. We are providing both the platform and the intelligence for developing the company's KPIs and dashboards, illustrating how Semantics can be a valuable partner for its customers. By leveraging our tools and expertise to build powerful data structures and governance for our customers, We are influencing the management decisions-making process and adapting our sales motion towards this process. Lastly, I'd like to highlight a large-cap global pharma company. During the third quarter, we implemented our platform to support the customers' Brazilian animal health business. By leveraging our platform, we are able to provide the customers with unique data insights for predicting animal health issues such as vaccine timeline and diseases consequences. This new logo presents a significant opportunity to expand into other areas and geographies of operation, a natural progression that we have seen evolve across a large swath of our customer base. These are just a few examples of the many business applications of our proprietary SaaS platform. We are just getting started and are encouraged by the positive feedback we are receiving. All these examples illustrate as we move into larger opportunities, it has become increasingly evident to us that customers are looking for a partner for their entire data journey. Beyond simply selling them a platform, we are offering them greater control and the ability to more efficiently extract value from their troves of data, which is increasingly being recognized at the highest levels of the enterprise we serve. Overall, our goal is to deliver our customers a set of solutions that reflect their unique needs, ranging from low-touch, low-code, and cost-efficient comprehensive platforms for the middle market to customize solutions for industry-specific verticals and large enterprises. On that note, I'm pleased to hand over to our CFO, Adriano Alcalde.
spk02: Thank you, André. Q3 was a very important quarter for us, as it was our first quarter operating as a publicly traded company. Despite the economic uncertainty and acknowledging some companies are taking a wait-and-see approach to investing, companies are broadly moving forward with their data and AI projects. That said, we remain confident in our ability to meet the ambitious goals we have set for Semantic's future. Now, I would like to provide an overview of our financial performance in the third quarter of 2022 before discussing guidance for the full year of 2022. The total net revenue for third quarter of 2022 was 81 million reais, an increase of 7% year-over-year, with growth across each of our revenue lines. Proprietary SaaS products revenue, the core of our scalable end-to-end data analytics platform, grew 16% year-over-year, with proprietary ARR increasing 21% year-over-year, and third-party SAFs increasing 2% year-over-year. We also saw a meaningful improvement to our gross profits, which increased 39% year-over-year. We delivered a gross margin of 48%, an increase of 11 percentage points year-over-year, reflecting improved revenue mix with an increased share of proprietary products, which carry higher gross margin from third-party SaaS. Adjusted SG&A net of merger-related costs and stock option plan grew 47% year-over-year. The increase in SG&A was expected due to investment in the company's geography footprint. Investments across our sales team and in product development, as well as implementing our go-to-market strategy and costs associated with being a public company. Total net loss for third quarter of 2022 was 200 million reais compared to 19 million in third quarter of 2021. The most relevant impact here is related to a one-time IFRS 2 listing expense of R$ 214 million, as described in greater detail in our financial statements. Backing out this listing expense, our net income would have been R$ 13 million. As a result of the closing of our merger with Alpha Capital in August, we received net proceeds of 632 million reais. As of September 13th, we hold a cash and cash equivalence of 532 million reais as our total assets increased to 850 million reais from 206 million reais as of December 2021. Note that during the third quarter, we prepaid a total amount of R$69.5 million in banking loans. In October, we have prepared an additional amount of R$31 million in banking loans. Also, as mentioned in our press release yesterday evening, we announced a plan to buy back up to $5 million in stock market in the period of one year. Turning to our forecast for the full year 2022, we are narrowing our revenue range to R$ 262 million to R$ 270 million. Note, we expected larger contribution from non-proprietary products in the fourth quarter. We are still early in the planning stages for 2023. However, based on our current pipeline and demand trends, we expect top-line growth of at least 30%, and we anticipate reaching the milestone of positive EBITDA in the second half of the year. We plan to provide formal guidance for next year when we report our 2022 full year results. In summary, we are pleased with our execution in third quarter and we are proud of what we have accomplished in such a short time as a public company. The embedded value proposition of Semantics products is resonating with customers as they embark on their journey. And we remain excited about the opportunity in front of us. With that, we thank you all for joining, and I'll send it back to the operator for Q&A.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rudy Kessinger with DA Davidson and Company. Your line is now open.
spk01: Hey, guys. Thanks for taking my questions. I've got several. I guess I want to just start with kind of the revenue splits here. The proprietary staff ARR, 21% growth, that's a pretty, you know, shockingly substantial dip down from 62% last quarter. And the proprietary staff's revenue, in the quarter was far below, you know, what we were expecting and certainly touched up to come in well short of your expectation for the year that you'd given previously. So what's going on in that business? What are the headwinds you're seeing from the macro? How are your new sales reps ramping versus expectations? And as we looked at 2023, the commentary on 30% growth next year, just what's going to drive that growth? Should we expect that to mostly come from third-party software revenue or primarily from proprietary SaaS reps?
spk03: Thank you, Rudy, for your question. So the first one is that all the go-to markets, the priority for the go-to market is a proprietary software. In the next year, of course, all the environment and all the strategy for penetration in the market is a proprietary software in the platform. We invest a lot in the new technologies like Zeta to improve the growth, to improve the addressable markets. Just for coloring here, the Zeta opened for us as a $35 billion in terms of the total addressable market. And of course, the plan is to improve more. Because of that, we're hiding new person, we're hiding new technology inside the platform. In terms of the growth, the last quarter, of course, we have more expensive. And this time, we accelerate more. Why? Because at the end of the year, normally the companies here in Brazil and South America spend more in terms of the budget and IT budget. And the decision in terms of the use of our platform is very key for driving new extract value from the data. And all the go-to-market for the next year is moving forward and growth in the industry. proprietary software. I don't know that my team here is complementary to this question.
spk01: Okay. Well, I guess I'm just, you know, again, to grow 30% next year, it would seem, you know, proprietary SaaS would need to grow far above that level. Again, so I'm just trying to understand. I think previously the expectation was third-party software revenue is going to level off next year and probably be about flat. But is your expectation now that you expect to see continued growth in third-party software revenue?
spk03: So the part of the growth, of course, we have in the third-party, but the most relevant growth is in the proprietary software. The plan is totally tangible because we have, of course, a pipeline. We have the Sales machine is working in these numbers in a very comfortable to achievement this growth.
spk01: Okay. Now, gross margin is very nice improvement, I guess, from the first half of this year at 48.5%. Is that kind of the new kind of run rate that we should model and expect from here forward and see slight improvements as SaaS increases as a percentage of the mix?
spk03: Total align of that, Rodi. the growth in terms of the proprietary is improving the margins. It's automatically because of that, of course, the go-to-market strategy is accelerating proprietary. And, of course, continue to grow.
spk01: Got it. And then you said EVA.posit by second half of next year. I guess just how should we think about OpEx growth? Have you pulled back on hiring? If so, to what extent, given the macro? And what are the areas you're still going to be investing in? on the hiring front going forward?
spk03: Yes, of course. The first one is a product that's the core for the company, new technology. And of course, we're thinking not just organically, but inorganically. But the mindset for the company always is sustainable. Not a fast growing, but it's not a sustainable. The mindset and the culture for the company is a growth, expressive growth and sustainable. The first is, of course, product. The second one is sales and marketing and delivery. You know, this announcement, we show what is the new hiring person, Jose and Marco Lino. Both is the key area inside the company. And of course, we look into the sales and market right now. to accelerate the go-to-market in proprietary software.
spk01: Okay, and then just lastly for me on proprietary SaaS, which products or capabilities in there are seeing the most demand versus which, you know, are still earlier on seeing the least demand and just which products are going to be the primary growth drivers here over the near term?
spk03: No, thank you. The first one, of course, is... connector layer this is an enable the customer to understand better in working terms of the data the second one is a SDP the fully the full end-to-end the solution you know why because the customer after they understand or after they connect the your systems The next step for the journey is extract value from the data and ask the DP to improve and deliver this value proposition for the customers. That's the main two main demands we have right now. And accelerate. Why? Because the middle market just starts in terms of the extract value from the data. And, of course, understand this is a key for investment in the next year.
spk01: Got it. Okay, that's it for me. Thanks for taking my question.
spk00: Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Leonardo Santos for closing remarks.
spk03: So thank you very much for beginning us today. We have no doubles about development, the programs we are making in the company. We are building an excellent team, incredible products with the market that is just starting. We will continue to grow the company in a sustainable way. We are all committed to execution our business plan. Thank you so much.
spk00: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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