Zenvia Inc.

Good morning and thank you for standing by. Welcome to Zambia's Fourth Quarter 2021 Earnings Conference Call. Today's speakers are Mr. Cassio Babsing, Zambia's Founder and CEO, and Shai Cho, Investor Relations Officer. Please be advised that today's conference is being recorded and the replay will be available at the company's IR website, where you can also access today's presentation. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question and answer session. For the 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 will be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. 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 your speakers for today, Mr. Cassio Bobson, founder and CEO. Sir, the floor is yours.

Hello everyone and welcome to Zenvius Q4 and full year 2021 earnings call. I'm Casio Babsin, founder and CEO. Today we're going to present the key highlights of the period and provide you with an update on our business. Let's start at slide 4. Q4 was a very strong quarter that closed an excellent 2021 for Sanfier. We delivered again on what we promised investors during our IPO process, solid revenue growth and strong gross margin expansion year-over-year. Revenue went up 46% in Q4 2021 compared to Q4 2020 and 42.5% in the full year. While G1 and Sense Data acquisitions contributed to this total, we highlight our solid organic growth of 32.8% in 2021. This is a direct result of our client base going up 25% to almost 12,000 customers and our rent revenue expansion reaching 122%, up by almost 8 percentage points from last year. Adjusted gross profit went up 147% in Q4 and 78% in 2021 to 198 million RL. Adjusted gross margin was 32.6% in Q4, adding 13.3 percentage points, and 32.3% in the year, adding 6.4 percentage points. we've been building a long-term vision from the ground up. We spent the first years mainly focused on evolving one-way communication and becoming the leader in mobile services and SMS push in Brazil. It was only in the last couple of years that we started our transformation to become a SaaS company focused on customer experiences, aiming to provide brands with a unique platform for unified end-to-end CX communication in Latin America. We are currently in the phase of enabling journeys that happen when the end customers of our clients are engaged in a variety of ways across their lifecycle through multiple channels that are enabled by our communications platform. But we already foresee and prepare for our next phase, which will be focused on enabling experiences, allowing end customers to experience some streamlined relationship with the brand no matter the channel or moment in time. Latin America has enormous growth potential as it is in the early stages of digital transformation and adoption of technology, especially in the small media companies. And this evolution will be data-driven. By using multi-channel engagement solutions and data analytics, we can provide our clients with actionable insights, enabling them to generate automated, customized actions and different touchpoints of the customer journey, creating more and more personalized and seamless experiences to end customers. So let's take a closer look at how we have been evolving our value offering to clients and customers, what we already delivered in 2021 and where we are headed moving forward. 2021 was a year of important milestones for us, from brand positioning to new products to M&A, and obviously the year of our IPO. During the year, we reposition our brand and evolve our culture to align the company's ambitions and long-term vision with our beliefs and behaviors, making sure we recognize the value of our humans and maximize value to our stakeholders. The combination of these two elements is key to pave the way for us to achieve our goal of becoming a global platform that empowers companies to create a new world of experiences. Our internationalization plans were implemented with the acquisition of Serena in the second half of 2020 and the launch of our operations in Mexico. In 2021, international revenues already represented roughly 6% of total. To improve our CPaaS offering, we have launched new products such as Trusted SMS and also added new channels such as RCS and Instagram API. We were very active in the last three years in M&A as we have completed five acquisitions that are effectively transforming our company. Our M&A strategy involved acquiring companies that complemented our technological existence, added solutions, new geographies, and a pool of talent. Integration of these companies will radically transform our value offering to clients in the short and medium terms, allowing us to increase our client base and net revenue expansion. In 2021, we implemented the integration of Serenum with full integration achieved now in Q1 2022. We also worked together with D1 team to map and understand the synergies, which led us to decide accelerating the integration. Since the integration is on track with back office activities and structures already fully integrated, SenseData plays an important role as it changes the core of our platform by adding data analytics and AI. As to Movidask, we expect to close this transaction now in the second quarter. The best way for us to understand the fact of these integrations is by putting ourselves in the client's shoes. We have been doing this by incorporating SenseData and Movidask solutions into our own customer service and implementing changes to ultimately improve our very own customer experience. This already had tangible impacts in the onboarding of new clients, for example. In this sense, we are happy to report that we received an important recognition with the RA1000 seal from ReclameaKey in January. This recognition was granted to 25 companies in Brazil, and it means that our clients recognized that we provided them the best customer experience. I would like to quickly share with you three different cases that attached how we can help brands. One of the largest fashion retailers in Brazil started its relationship with us when they needed an SMS broker. The relationship then evolved and they started using our conversational platform, turning Zenvia into their trusted advisor and provider for end-to-end sales solutions. Through strategically designed journeys, they were able to use WhatsApp, which enabled their salespeople to reach out to customers as soon as the epidemic lockdowns started to offer products. After 90 days of lockdown, they had already reached 75% of revenues through online and WhatsApp sales. One of Brazil's unicorns, a well-known real estate platform, ESSense has automated journeys through WhatsApp to revolutionize the local real estate market, facilitating deals among sellers, buyers, and renters. They will work closely with them to understand their business needs and evolve the product according to the market requirements. Through our Revised Customer Program, we brought their team closer to our R&D and product teams and were able to jointly build a product roadmap. Zenvia Solutions helped them record improved performance. Anima Educação, one of the largest education conglomerates in Brazil, uses Zenvia products to provide self-service solutions to their students, who no longer need to interact with human agents to address most of their needs. This allowed Anima to gain 40% in productivity in their customer care, releasing their agents to support a broader number of students who indeed require human interaction. And what's even better, the level of satisfaction from students with the admitted journey is totally aligned with the ones held by human agents. Finally, our IPO in July of 2021 was a special occasion when we saw the market welcome our investment thesis and that's what we have been doing since then, expanding Zynga and preparing it for the next level our customer experiences in Latin America and globally. Looking ahead, we are now at an inflection point in our expansion route. 2022 will be the year when we lay out the foundations for the profitable growth ahead, accelerating the integration of all businesses into one powerful platform and deploying a new go-to-market strategy to provide the best SaaS experiences for brands, allowing them to offer an unparalleled end-customer journey. In this sense, we released in mid-February our decision to accelerate D1 integration, as we have been seeing strong demand for highly customized end-to-end customer journey solutions. We are ready to speed up both platforms and team integrations to better serve our enterprise clients. Our goal is to move these customers from base communication processes into a journey-wide implementation integrated and leveraged by Data NNI, all in one single platform. We expect to extract several signatures from those integrations that will allow us to offer a much more comprehensive suite of products and services for the brands that want to improve their customer journeys. As you can see, all we do aims at evolving our value offering, always focusing on generating value into the end customer. This has always been our priority, and I dare to say that this is the main differential between us and our peers in the region. Everything we do at Sandvip has the end customer first. This may seem pretty obvious, but it's not. We analyze every step of the customer journeys, which will allow us to transform journeys into experts, benefiting them, the brands, and ultimately We combine BigQuery with usage-based revenue models that allow us to grow with our customers. We initially adopt a land and expense strategy in which we introduce our platform based on one simple use case and then develop the customer relationship over time by upselling and cross-selling. That's the main reason why our focus for 2022 will be connecting our SaaS products with our platform core in order to create a unified end-to-end experience. This will allow our clients to further engage with our platform, leveraging adoption of multiple use cases that covers different parts of their customer journeys. We believe we are now very well positioned to do what we do best, enabling amazing customer experiences for our current and new clients. We are very proud of the results we achieved in 2021 and excited about the prospects for 2022. We expect to keep the strong pace of growth in 2022, as we see increasing demand for our services and a lot of opportunity for growth. We're focused on integrating and launching new products and services that will help us pursue even more substantial organic growth in 2022. I will now pass on to Shai, who will discuss our key financial metrics in more detail and will be available for the Q&A.

Thank you, Cássio. Hello, everyone. Thanks for joining us for today's call. Let me share with you some thoughts on our results. The combination of organic growth, solid client retention and acquisitions boosted our revenues in the year. Our client base went up 25% to almost 12,000 clients. Our net revenue retention rate ended the year at 122%, up almost 8 percentage points from last year. In the chart on the top right, you can also see the contribution of organic growth and acquisitions to our revenue. D1 and Sense Data contributed R$41.5 million to the consolidated revenue, while R$141 million were organic, representing a 33% growth. Another important highlight is the quality of our revenues. Out of the total, revenues from beyond SMS termination were 35% in the year, but if you look at Q4 2021 alone, it is already over 40%. We are very proud to see the pace of this transformation, as only two years ago, most of our revenues were from SMS termination. Even within 2021, if we look into Q1, we started the year with only 16% beyond SMS termination. For us, this is an amazing indicator that we are moving in the right direction. The increase in revenues was also a profitable one, and this is important because we promised this during our IPO. Adjusted gross profit increased 147% when we compare Q421 to Q420, with the adjusted gross margin expanding a solid 13.3 percentage points to almost 33%. In the year, adjusted gross profit increased 78% to almost 200 million reais, with the adjusted gross margin expanding 6.4 percentage points to 32.3%. It is important to highlight that this improved revenue mix helps soften the Q4 seasonal impact of higher SMS volumes over profitability, mainly related to Black Friday and Christmas. As you can see in the chart at the right, 77% of our adjusted gross profit in 2021 comes from beyond SMS termination. And these are direct results of our diversification strategy and recent acquisitions, and as we move more and more to become a SaaS company. To finalize, we are introducing our guidance for the fiscal year 2022. As Cassio pointed out in his remarks, 2022 will be the year where we lay the foundations for the profitable growth ahead. We expect our revenues to be within the range of R$ 875 million to R$ 925 million, representing a year-over-year growth of 43% to 51%, with organic growth standing between 32% to 34%. We also expect adjusted gross margin to be within the 35 to 36% range, representing a year-over-year expansion of 2.7 to 3.7 percentage points. This concludes our prepared remarks. We can now move to the Q&A session.

We will now begin the 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, please write down no microphone at the end of your question and our operator will read your question aloud. And our first question comes from Andres Salles, a cell site analyst from UBS BB. Andres Salles, we are now opening the audio so that you can ask your question live. Please go ahead.

Hi, guys. Can you hear me well?

Yes, yes, we can. All right.

So thanks for the call and thanks for taking my question here. I have a question on the revenue breakdown here. It's really positive that you guys grew SMS, non-SMS revenues to 35% during the full year. We're trying to assess the short-term dynamics of it. How was the breakdown? If you could give more specifics on the breakdown for Q21 and what to expect for the upcoming quarters.

Thanks. Thanks for the question. Specifically in Q4, revenues from beyond SMS were 41%. As you can see in our presentation, I'll let Cassio discuss the trends.

Andrey, we're seeing this continuous growth for solutions that have been launching and also the ones that come from acquisitions. So as this layer of solutions that drive different parts of the platform are being leveraged, we're seeing this at a higher pace on the SMS revenues. We're seeing naturally these percentage of beyond SMS growing up on a quarterly basis. Hence, we expect that Inferno22 will keep the same kind of dynamics.

Got it. Super clear.

Thank you. Thanks for your question, André. And now the next question comes from Enrico Trota, a cell site analyst from Itaú BBA. We are now opening the audio so that you can ask your question live.

Please go ahead. Good morning, guys. Can you hear me well?

Yep. Yep. Go ahead. Okay.

Well, hi, Cassio. Hi, Shai. Two quick questions here. One, also again on the share here of the beyond SMS termination in the revenue mix. We know that, of course, you have been increasing these numbers, as you mentioned, 41% in the Q4. So it has been growing consistently. Also, of course, you have the the acquisitions, but we know that in the 4Q you have a seasonality effect as you guys mentioned on the SMS. If you were to adjust, I don't know if you have this kind of pro forma number, but if you adjust by the seasonality effect of the Q4, What would be the share of the beyond SMS termination? So this will be my first question. And the second question, I don't know if you could comment a little bit about the cross-selling opportunities, the cross-selling evolution here of the more profitable solutions, the API-based solutions. So if you could open what percentage of the clients that are using SMS are also using more than one solution here on the API basic kind of product. So if you could provide a little bit of more detail here on how this has been evolving. That's it on my side, guys. Thank you very much.

Thank you, Enrico. I'm not sure if we have... Caio, do you have what would be... Revenues from beyond SMS, if we were to exclude the seasonality?

Yeah, we can assume that we have a bid like 20% higher than the average for SMS. We would assume that the beyond SMS revenue will grow for 5 percentage points, around 45%, I would say. Something like that.

And Cassio, can you comment on cross-selling, what we're doing, how this is evolving? Yeah, definitely.

Rico, we don't disclose the numbers for cross-selling, but it's fair to say that we've been structuring different approaches for customers to adopt more widely our whole platform. And we have, let's say, more than 5,000 customers that are using solutions beyond SMS currently. which means it's becoming a strong part of our market presence, being driven by these new solutions that have been launching. And the way these customers usually start nowadays, most of these customers start nowadays from solutions other than some assertion. That's most of the reason we're seeing is because the demand is huge. We do, of course, work at the cross-sell, but it's not solely these revenues from beyond the semester. They don't come solely from a cross-sell. They come especially from new customers arriving at some of them. And sometimes it occurs both ways. A customer can start with a semester and then go into one of our solutions. On the other side, it can come from one of our beyond SMS relations, and then use SMS over time. So this is basically how the dynamic works for the portfolio adoption. And, Caio, I think that we don't have that kind of number for cross-hailing being disclosed, right? Yeah, you're right, Caio.

Perfect, perfect, Casio. Thanks, Caio and Shai. Thank you very much, and have a nice day. Thank you.

Thanks for your question, Henrico. And now the next question comes from Diego Aragão, a sell-side analyst from Goldman Sachs. Diego Aragão, we are now opening the audio so that you can ask your question live. Please go ahead.

Yes, good morning, guys. Thanks for taking my question. I guess my question is just like a follow-up on the revenue mix. I mean, please correct me if I'm wrong, but If we would assume this 41% SMS revenue in the fourth quarter, and according to what we can see for the full year 2021, we are getting here into a negative margin on the SMS business. So is this right or what we are missing here? Thank you.

Thank you, Diego. Caio, do you want to share? I can tell you some numbers, but Diego, I can tell you this. It's not negative. Definitely, Q4 has a lower margin on the SMS business. And the reason being that because of the client mix that impact the seasonality, the profitability is slightly smaller, for instance, in Q4 versus Q3, but definitely not negative. We can take this offline and I'll help you do the math.

Okay. All right. Sounds good. Thank you, Shai.

Okay. Thanks for the question, Diego. And now the next question comes from André Salles again, Southside Analyst from UBSBB. André, we are now opening the audio so that you can ask your question live. Please go ahead.

All right, thanks guys for the follow up here. I have a question on marketing. We've seen some, just one of the dynamics of R&D and commercial expenses here, as we've seen the robot, Little increase during the fourth quarter. In terms of percentage of revenue, which level does the company understand that it should be the normalized level of R&D and commercial expenses going forward?

Thanks, André. Cassio, do you want to take this?

Shai, in terms of percentage, Caio can disclose maybe what we have in the forecast, right?

Yeah, we understand that we have plenty room for growth, especially R&D, because we came from a few years back of less than 5%, and we are aiming for the next years to reach a level between 13% and 15% of the net revenue. And for sales and marketing, we already think that we, for now in 2021 and the beginning of 2022, we reached the level that we think is It's good for the company to sustain the growth ahead. And it's around 13 to 14% of the non-resident.

Super clear. Thanks, guys.

And just a reminder, again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down and we'll 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.

Roger, I have a question here on the webcast. Cassio, can you comment on the integrations of the companies that you acquire, how those are going?

Yes, definitely, Shai. Talking about most recent acquisitions, we finished Serena's integration process during last quarter. and the company D1 that we acquired middle last year. We've been now into a full mode integration. We expect to finish the process during the next couple of months. It's quite interesting the way we've been able to pull synergies as we've been integrating different teams and talking directly to customers and offering our whole portfolio for customer experience So it's been quite interesting going into that direction of a full integration. And talking about Sense Data, we started the integration process. We just finished phase one, which means the corporate structure. Now we're going into phase two, which means approaching the product and platform so we can benefit from the different functionalities and possibilities that we can create by combining both platforms. I'm talking about MoviDesk, as we mentioned. Before we expect to close the operation in Q2 and after that closing, of course, we start first with the corporate integration and then we go the same way by integrating the platform so we can bring a whole set of customers that have this kind of demand. that have been served by Zendure with different part of our portfolio to benefit from MovaDask solution as well. And also, of course, connect our whole platform with MovaDask so we can increase the value for these more than 3,000 customers that they can reserve. So that's pretty much how I've been going in terms of integration. We're very happy and excited with what we've been seeing in terms of benefits for customers and what we're able to pull in terms of synergies and opportunities considering that with each acquisition, we expand our tab and as we deliver the integration, we create even more value with the same customer we're currently serving.

Perfect. And now we have the next question. It comes from Diego Aragão, Southside analyst from Goldman Sachs. Diego, we are now opening the audio so that you can ask your question live. Please go ahead.

Yes, thanks for the follow-up question. So look, given where the stock is trading and the price, I mean, would you consider doing like a share buyback program or something like this? We've been getting a lot of questions from investors. So I was wondering if you can just share your, let's say perspective, given current market environment. Thank you.

Thanks, Diego. What we can tell you is when we consider our capital allocation, especially in light of other questions that we get in terms of additional M&A. What we can tell you is all the M&As that were must have, we did, there could be another one or two small that they are nice to have, not urgent to be done. With all the crisis, interest rates going up, so we decided to take a step back and preserve some of the liquidity that we need to run the business. In terms of share buyback, it's part of the consideration when we decide how to allocate capital. At certain point when we decide to resume capital allocation for M&A, one of the considerations will definitely be if it's better to buy our own shares or to buy another company. That will depend on valuation, that will depend on a couple of things, but it's definitely an alternative that we have.

That's great. Thank you, Shai.

Thanks for your question, Diego. And now we have another question from Enrico Trota, Cell Site Analyst from Italo BBA. Enrico, we are now opening the audio so that you can ask your question live. Please go ahead.

Hey guys, no, another question here regarding competition. I'd like to understand from you guys, how is the competitive environment? We have been seeing different players here looking at communication and also experience platform. So we have been seeing a lot of different players willing to become an ecosystem and in this creation of what they call ecosystem also involves several solutions that Zainjia is offering right now here on the communication side of the business. I mean, how has been the competition, if you could elaborate a little bit on that, if this has been impacting churn levels, I mean, how do you see this by product, if you could provide more granularity here on this level? Thank you.

Thanks for the question, Enrico.

Cassio, you can take this one. Yeah, yeah. Very good question. Talking about the competitive dynamics, we have basically two parts of the business. The first is the CPaaS, where we started. The CPaaS market has been always a competitive market. And we are very used on these dynamics, especially on big customers. So I would say that hasn't changed. since the last couple of years in terms of competing in the market. When we look at SMBs, it's a bit different, even for CPaaS. It's much less competitive than it is for the enterprise market. So we haven't seen any change in that sense. Looking at SaaS, customer experience SaaS solutions, which are the majority of our beyond the SaaS revenues, Now here we see a huge demand for different solutions and ways to improve customer experiences and the dynamics of competition on the solutions, they differ for each specific solution. It's fair to say that we mostly compete with niche SaaS companies across different markets and regions across all the time. And for each one of these solutions, when we face competition from global players, We are very efficient in competing with these global peers. That's why we've been very successful in achieving a high growth pace on these solutions throughout the region. And as we invest more on the integration of these solutions into the core of our platform, we expect to create a very unique approach for the market as customers will be able to experiment and test different solutions and benefit from the data that we are able to provide, the insights we're able to provide. And also, of course, the multi-channel approach as we are a C-Pass platform and we work full stack, we're able to help these customers to adopt solutions considering the whole bunch of channels they need sometimes to provide an awesome services for the customers. And basically looking at this landscape for SAS, customer experience SAS offerings, we don't see any high competition or even if some players are in some parts bringing one of two solutions on the platform, we don't see something as a threat to our strategy because it's quite unique. and the way of being evolving all that we expect to be really successful as we evolve that integration. And that's most of the focus for 2022, as Shai mentioned. We already have very interesting and highly competitive solutions for the market. And as we invest more on the solutions and as we scale them through the markets and assessing the high demand, we expect that this would really be interesting in terms of how the percentage and how that would represent in terms of our revenues and results at the time.

Thanks for your question. And this concludes our question and answer session. I would like to turn the conference back over to Mr. Kasubovicin for his closing remarks.

Thank you very much all of you for joining our session. It's been a great year and looking ahead at 2022, we expect to really focus and lots of opportunities have been working on and seeing all that evolve. into our strategy in order to fulfill our vision and deliver our purpose of creating a new world of experiences for end customers and empowering all of those businesses across the region to really make a difference in how people enjoy and experience their resources and engagement with brands. So thank you very much and see you next time.

The conference has now concluded. Zangief's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect. Have a nice day.