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spk03: Thank you for standing by and welcome to this Matrix first quarter 2023 results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Augusto Villela. head of Investor Relations. Please go ahead, sir.
spk00: Thank you. Good morning, everyone, and thanks for joining our first quarter 2023 earnings results conference call. Joining me on the call today is Leonardo Santos, our CEO, founder, and chairman, and Adriano Alcalde, our CFO. By now, everyone should have access to our earnings announcements. This announcement is also on our Investor Relations website. During this call, we will make forward-looking statements, including statements about our business outlook, strategy, 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 will differ materially due to the number of risks and uncertainties, including the risk factors outlined in our 20F filed with the SEC. Also during this call, we'll 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.thematics.ai. Another 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.
spk02: Thank you, Augusto, and thank you, everyone, for joining us today. It has only been one month since we last reported results. which is a reflection of the significant improvement we have made in our internal reporting progress. I'm excited to walk you through our operating results, discuss key development during the first quarter and progress we have made against key growth priorities. Jumping the right into results, In the first quarter, we delivered total revenue of 40 million, as we continue to see uptake of proprietary sales, each grade 4% year-over-year, and a material increase in our gross margin, as we saw a full quarter benefit from the operating expense adjustment made last year. Recall last quarter, we had indicated that proprietary sales used declined in the first quarter due to the no recurring health data revenue. Contract time and the discontinuity of some no-core products. Against the backdrop, we are pleased with the most growth in the proprietary sales business. as we discussed last quarter we have shifted our strategy focus toward growing our proprietary business while driving leverage through as a balancing investment approach our key one results reflected the shift to higher quality revenue with a 35 percent increase in the semantic data platform our sdp each six at the core of our proprietary SaaS offering. Combined with the adjustment to our cost structure, gross margin extended 10% year-over-year, reflecting our culture of always seeking efficiency in our business. I would now like to provide any updates on the progress we have made across key initiatives that are crucial to our success. This includes, one, product roadmap development and innovation across our proprietary platform offering, two, enhanced capability and selective M&As, and three, improvement in our sales motion and go-to-market strategy. Starting with our product roadmap, bringing disruptive, easy-to-implement technology to market is a core tenet of our long-term growth plan, and we continue to develop capabilities around SDP, our proprietary, highly scalable end-to-end data and enterprise AI platform that enables organizations to extract value from data in a time-efficient way. we have emphasized an agile and design-based approach across our product team and this quarter we are pleased to make several announcements first in just one month since the release our generative ai product we have received about 1 300 user requests to our platform reflecting the potential demand and interest in the innovative and cost-reducing technology. Our team has been working on the addition of several new foundational models, improving code efficiency to optimize DPUs, accelerating and abstracting the complexity of applying generative AI into the business context. Second, in the area of the quantum computer, we launch a sandbox to pull and use data in the simulation. We strongly believe that this technology has the power to transform computers by enabling faster, more efficient processes and complex problems that are currently beyond the capabilities of legacy computers. Third, We are excited about our upcoming development of SDP Genius, a larger language model framework within the SDP platform to improve usability, query response times, and automation communication between teams. Importantly, SDP Genius incorporates the feedbacks giving us the opportunity to interact with the listeners and building the future centered on our customers' needs. Fourth, with our semantic data integration platform, we are improving our capability by launching an integration feature that increases security and user experience by hiding personal and sensitive data transactions. a high priority concern among our customer base. Fifth, we have released a new model for financial institutions, FTP Financial, a proposed building to a complexity analysis of the financial product design, solving business problems by leveraging public data sets from the financial community, including the Brazilian Stock Exchange credit bureaus and other banks' sources. Aligned with our culture of development solutions together with the customers, we are also implementing a customer advisor board, inviting the key customers from the different industries, verticals, to share feedbacks, design and test new features with us. We are excited to increase the level of the collaboration with the specific customer cohort, allowing us to optimize our product roadmap based on the customer needs. The first meeting of our advisor board will take place later this quarter. Moving on, the new capability around the recently acquired business we have a pipeline of new features announcement planet for our multi-generative ai platform a byproduct of the elemental acquisition earning this year as well new enrichment to our data marketplace Looking ahead, we plan to continue and accelerate product development through a dual approach of M&A and levering our deep bench of engineer talent. Finally, we continue to make progress, expanding and improving our go-to-market motion. We have increased our focus on the vertical selling, amplified our marketing and lead generation activities, and begun the building out of our indirect sales motion, while continuing to build strategic relationships to reinforce our channel ecosystem. As a part of this enforce, and supplementing recent key hires we have made across the organization. In the first quarter, we announced the addition of Bruno Bonfan, our first channel and ecosystem director. Within more than two decades, we experienced indirect sales and channel management in the best-in-class companies, including Google and Avanagi. Mr. Bonsan will be the integral and development for our global partner program, which we are relaunching today. Our program currently has over 70 partners who will now be organized in the four groups based on their approach, semantics partner, sales partner, implementation partner, and independent software vendor. This problem is a key drive of our revenue growth strategy, and we expected to be a significant contributor in scaling the business in the coming years. Reflecting our progress since we increased the focus on our core proprietary staff only one quarter ago. I'm pleased with the interesting level in higher quality proprietary SaaS solution and the material expansion in our gross margin profile on our journey in the profitability. It's clear to me that we have chosen the right strategy for sustainable long-term growth and have right since our cost structure without compromising our ability to investment for scale. Lastly, feedback from the customer and partners reaffirms that we are making the right adjustments to capture the long-term opportunity in front of us. As always, we are focused on what we can control, especially given the uncertainty macro environment. That said, I remain confident in our ability to deliver profitable growth this year while meaningfully increase our proprietary mix of business. Now, I would like to share a few key wins from the quarter that are reflecting our strategy focus and enhancing the broad capabilities of our platform. First, a customer in the juice and natural beverage industry who is launching the new product was seeking strategy analysis of the competition and market that server. This customer has development FTP to integrate internal and external sources in the centralized data lake, supporting our research of market intelligence, market and product selection. We are excited to represent the company BOSS, their corporate data platform. and looking forward to expanding our partnership and cross-sell additional services. Next, an asset manager who already uses our solution targeting to the financial vertical has expanded their SDP employment as the Building a FinTech as a Service offering This customer is delivering our proprietary SDP solution to connect several partners in the credit industry, automation credit analysis and back-office functionality. Follow up on a few customer cases we have mentioned in this past. We are placed to announcement that a contract to monitor street lights in São Paulo has a result in the several million reais in electricity cost savings, with the project recently being extended to traffic lights, highlight our lending and expanding sales motion. Lastly, an existing engagement with a major agribusiness company that's building an SDP-based solution to provide analytics and insights to the former that Boyd Machiner has decided to showcase. our joint offering at the largest agribusiness fair in Latin America, providing abroad exposure that could lead to additional opportunities. With that, I would like to turn the call over to Semantic CFO Adriano Caldo. Please, Adriano.
spk01: Thank you, Leo, and thanks everyone for joining us. I will start by reviewing our first quarter results and then move on to providing guidance for 2023. Despite the economic uncertainty, companies are broadly moving forward with their data and AI projects. Against this backdrop, we delivered modest top line growth of 1% year over year in the first quarter. We highlight 17 customers contributing more than 5 million reais or $1 million in the last 12 months. Third-party SaaS revenues performed in line compared to the first quarter of 2022, but with a gross margin expansion of approximately 17 percentage points year-over-year to 27%. Our growth was driven by proprietary SaaS. The core of our scalable end-to-end data analytics platform, which grew 4% year-over-year in the Q4. Recall we had anticipated an year-over-year decline in proprietary SaaS. Within proprietary SaaS, SDP continues to scale, which was offset by the discontinuation of some non-core products, contract timing, and some non-recurrent health revenue, which Léo previously mentioned. Growth in proprietary SaaS and the benefit to our cost structure following our Q4 restructuring drove meaningful improvements to our gross profit, which increased 33% year-over-year. We delivered a gross margin of 43%, an increase of 10 percentage points year-over-year. Moving to the operating expenses, we remain highly focused on improving the leverage in our business while being mindful of our investment for growth. Adjust SG&A net of merger-related costs and stock option plan and other non-operational expenses grew 63% year-over-year in the first quarter. The increase in SG&A was due mostly to our investment in sales and market expenses as we reinforced to our goal to market approach as well as our R&D expense. directly related to the evolution of our products. Adjusted EBITDA loss for the first quarter of 2023 was 34 million reais, reflecting a gross profit of 17 million reais, which was offset by the SG&E due to the reason I just mentioned. As of March 31st, we had a cash and cash equivalents of 232 million reais. note that during the first quarter we paid a total amount of 10 million reais in banking loans and 25 million reais related to our recent acquisitions as of march 31st we had 6 million dollars remaining in our share with purchase authorization before offering guidance i'd like to share some thoughts on the near-term environment As we highlighted in our product discussion earlier, we plan to keep innovating and investing for the opportunity ahead of us, with a mindful approach to expense levels and sharp focus on factors within our control. Like the vast majority of our technology peers, we are seeing the impact of microeconomic headwinds affecting broader IT expansion. Consistent with our commentary last quarter, many customers and prospects are taking longer with their purchasing decisions and require an extra layer of approval in the budgeting process. We remain extremely mindful of these dynamics and had considered them closely in our outlook for the remaining of the year. Turning to the forecast for the full year 2023, we are reaffirming our guidance that we announced in the previous quarter. As we have highlighted in our earnings call, we are introducing several new features that are already impacting our pipeline. As a result, we anticipate gaining significant momentum in proprietary SaaS revenues to the second half of this year. Finally, reflecting the margin benefits from increased mix of proprietors throughout the year and the full impact from recent cost saving initiatives, we reiterate our goal of reaching the milestones of positive adjusted EBITDA in the fourth quarter of this year. As we look ahead to the balance of 2023, While micro-industry dynamics remain a factor, we remain focused on the significant opportunity ahead of us and are committed to fiscal discipline and driving compelling returns for our shareholders. With that, we thank you all for joining, and I'll send it back to the operator for Q&A.
spk03: Certainly. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. One moment for our first question. And our first question comes from the line of Rudy Kissinger from DA Davidson. Your question, please.
spk04: Yeah. Thanks for taking my questions. Um, personally, certainly great to see you guys move up your reporting more in line, uh, with us based company. So great to see that, um, on the, the proprietary SAS revenue, you know, the guide, I know you're reiterating it for the full year. It does imply some very substantial acceleration in that growth throughout the year to hit that number. And so I guess I'm curious just if there's any commentary you can provide, at least that's going to ramp more in the second half, but just the linearity of that acceleration throughout the year. And what needs to go right to hit that number? How much is based on new logo growth, expansion with new customers? What are your assumptions on deal close rates? How much of it is already in the pipeline, et cetera? You know, just any color you can provide there because it does seem like a very aggressive ramp still.
spk02: Yes, thank you for leaving here. I think Adriana is going to answer after. But we have the three pillars we investment inside the company in the first quarter and the last year. The first one is the people. Of course, people attended for each vertical application, building applications top of the FTP in a specific segment. It's like SDP, you launch this today, SDP Financial, SDP Health, SDP Retail, something like that. The second is ecosystem. Part of the strategy in accelerating the revenue and growing the company is ecosystem. You know that right now we launched a partnership ecosystem, and it's starting a 70-new ecosystem. partners to help us in terms of the geographically accelerated pipeline and new revenues. And, of course, hyperscale companies like AWS, Google, and Amazon, and Azure, of course. So, the third is a PLG strategy. The product right now is launching here in the U.S., for example, is starting for a PLG strategy. Every other SPP platform, especially Genentech AI, it's already read to use the LG strategy. So, Adriano, I don't know you're complimentary here.
spk01: Yeah, thank you, Léo, and thanks already for the question. Yeah, I think Léo covered all the points, but basically, as we mentioned in our prepared remarks, we are seeing pipeline growth as a result of new products, as Léo has just mentioned, and we expect gradual uptake of new features and models to contribute more meaningfully and drive a momentum in the proprietary SaaS. mostly in the second half of the year. So, we are comfortable in maintaining both our total revenue and proprietary sales guidance for the full year. And we think we have embedded the appropriate amount of conservative in the numbers. So, that's the compliment I would say.
spk02: Okay. Just a word of coloring here, Ruggie. Just for the coloring here, the lending and expanding strategy is execution. For the Q1, one financial customer extended 40% just for one quarter, just for the caller for the next month or the next quarter.
spk04: Got it. Okay. And then certainly nice to see you spend some money to buy back your own stock. I know you said you only got $6 million left on that. I imagine that's probably been used throughout Q2. I don't know if you can comment there. But do you have any plans to, I guess, continue to add back to that repurchase program? And then on a cash burn basis, Adriano, how much cash, and then you're targeting positive EBITDA by Q4, how much cash do you expect to burn the rest of this year?
spk01: Thank you, Rudy. Yeah, it's a great question, very important question. Basically, we will not give the exact guidance about the cash, but in fact, we had some cash consumption in the first queue. We had some payments related to our M&As. We have some debt payments, and we have the repurchase programs, as you just mentioned. We see a great correlation of operational occasion with the course. So, as we said, we are forecasting a positive EBITDA in the Q4-23. We had some non-recurrent, as you saw in the Q4-22, and those related to provisions and other costs as we had. And semantics is, as I said, is fact that deficients from this return that we rolled during the 2023, although we are not public in quantity of savings, of course, since we are also increasing investments. With the revenue acceleration in the second half of the year and the expected improvement in the gross margin that we see on the migration, we are confident that we will reach the important milestones and cash in the fourth Q of 2023. Got it.
spk04: Okay. And is there – oh, go ahead, Leo. Sorry.
spk02: No, no, go ahead. Go ahead, Reggie. Just for your expectation in terms of the revenue, all the enforcement for the company, ecosystem, team, and new products is the expectation to accelerate in T3 and T4, okay? That's the expectation right now because the second half for the companies, all the years and all the history is strong to compare T1 and T2, okay? Got it.
spk04: Okay. And then on the third-party... Software revenue is flat year over year in Q1. I know you're shifting focus to proprietary SaaS. It seems like, based on the guide, that that's going to be roughly flat for the year. But have you seen any success as of late just migrating third-party software customers to SaaS? And what's your expectation for migrations this year and further out?
spk01: Well, the expectation is, as we said, third-party SaaS tends to have a linear performance, and we see the migration, as we said, from proprietary to proprietary SaaS. So that's the reason we see that basically the lines are still the same trend we saw in the fourth quarter. So we expect during the year that the migration, and we see that third party stocks will grow, but very, very close to the similar that we saw in the Q4s and the first Q of 2023.
spk02: This is the last quarter in the earning call. I told you about the revenues in Q4 to compare in Q1. The expectation is going down in the Q1 because there's a lot of the no recovery revenue, especially in the health segment, not continuing in this Q1, just for your expectation, okay?
spk04: Got it. Okay. That's it for me. Thank you.
spk03: Thank you. Once again, if you have a question at this time, please press star 11 on your telephone. And I'm not showing any further questions at this time. I'd like to hand the program back to management for any further remarks.
spk02: Thank you for joining us in our earning call today. I'm proud of the results of semantics achievement this quarter, especially the quality of our revenue and growing of the gross margin from 32% to 43% year over year. Confidence in semantic strategy direction and the value of our initiatives. We implemented a very solid ecosystem. We started an agenda of the product lead role and we recently launched our AI offering for enterprise and our data marketplace. Our opportunity is huge, and I believe we are on the right path to continue scaling our business. I wish you all a good week ahead. Thank you so much, everyone.
spk03: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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