Zenvia Inc.

Hello everyone and welcome to Zenvia's Q2 2022 earnings call. I'm Cassio Babsin, founder and CEO. Today we're going to present the key highlights of our second quarter results, demonstrating that we are on track to deliver guidance for the year. Let's start with slide four. During our investor day at the end of July, we disclosed to the market how we unified our portfolio of customer experience solutions after accelerating R&D investments and concluding all planned acquisitions in this first year as a public company. We're now able to provide a complete end-to-end customer experience journey to support companies to attract leads, convert into customers, search them when needed, and guarantee a successful relationship. Xavier Attraction, former Xavier Campaign, is a SaaS solution that allows companies to create valuable communication campaigns for their prospects and customers in an easy, connected and fast way by using data intelligence and automation across multiple channels. It allows companies to communicate with customers at the right time with the right channel. Companies using this solution can segment their campaign by audience, profile, or behavior, managing and enriching their contact base with data captured from multiple sources. Zainview Conversion comes from Serena. It's our sales solution that allows companies to improve sales through intelligent and multi-channel conversations while ensuring better performance of the sales team through data and integrations. For example, companies can optimize their entire sales process by starting with lead generation from digital ads then all the way through the lead qualification process, sales engagement, sales closing and even payment collection along the same conversation with the customer. Zinvia Service comes from Movidask. It is our SaaS solution that enables companies to provide amazing customer service with structured support across multiple channels. It is deployed to ensure a consistent experience for a long-term relationship while improving team performance and efficiency. As an example, companies can manage performance with several KPIs, establish multiple customized service level agreements, control tickets across internal teams, and much more. Ziva Success, which comes from SenseData, is our SaaS solution for the customer success phase, enabling companies to continuously engage customers based on their individual context, promoting healthy and long-lasting relationships. With this solution, companies can connect multiple data sources to create a 360-degree understanding of their customers, including customized KPIs and behavioral tagging, so actionable insights are generated and transformed into proactive and highly contextualized customer interactions. Let's move to slide 5, where you can understand exactly how our platform is structured. In addition to the solutions I have presented, our platform also provides 6 tools that companies can use to integrate and automate their customer experiences in various ways. Our main tools are APIs, bots, NLU, and docs. We're building a new world where experiences become more personal, engaging, and fluid for all humans. Our platform enables companies to break down the barriers that exist in customer experiences today. Quantum is the essence of this platform. It connects all of our solutions and tools with the company's systems and processes. Quantum remembers your name, your latest interaction, and even your sentiment towards brands at any point of the journey. It consists of four core components. Quantum Connect enables companies to bring customer data and events from other software into our platform, allowing highly contextualized interactions. For example, when a customer enters a physical store and buys a product, it is possible to immediately communicate with the customer by reading the data from the back systems with Xenvia Connect. Quantum CDP, or Customer Data Platform, stores end-customer information from either the platform itself or for Quantum Connect and assists in reaching both automated and human-based interaction according to the customer history of the company. With Quantum CDP, a company can define the best channel to impact an end-customer by accessing this end-customer's previous behavior in terms of communication channels. quantum abstraction enables communication with customers through various channels in a simple way streamlining processes and enabling the end customer to switch channels while keeping the conversation going for example the end customer can start a conversation for support on instagram and on the next day continue it on whatsapp and finally quantum cognitive automates predictive data analysis to unlock value from customer relationships based on their behavior, conversations, and transactions, enabling highly contextualized and proactive experiences. For example, by analyzing the profile of a particular end customer, we can identify that they always buy a certain product during a certain period, but this period is about to end and the end customer has not made the purchase yet. Maybe we can trigger a reminder for them or create a promotional campaign. This is how our platform connects all the dots along the customer journey, providing multiple ways for companies to create unique experiences that are more personal, engaging, and fluid. Companies can start working with us by subscribing to any solution or tool, and as they go deeper into adopting multiple parts of the platform, we can break down all CX pairs and unlock the true potential for end customers. For you to see how all this really works, we prepared a short video that presents the journey of a fictional end customer, Johnny. We call it Johnny's Journey. Right after the video, Shai will discuss our key financial metrics in more detail, and I'll be back after for the Q&A.

Get to know Johnny, a Zenvia's client consumer, top store. Johnny usually buys at two stores. One is a Zenvia client, the other one isn't. Johnny's experience with the Sousa store, which is not a Zenvia client, is impersonal and out of context. It generates high costs without effective results for the company. Johnny is at work when he receives a message from the Sousa store, offering a women's shoe, but he doesn't even check it. The offer, product, and time did not fit Johnny's profile. Top Store, on the other hand, which is a Zenvia client, is going to provide a unique end-to-end experience for Johnny. The following day, Johnny is having breakfast, the time of day when he uses his smartphone the most. Then he receives a message with a picture of a sneaker he has researched. It is the specific model he has been highly interested in. But he has some questions before making his purchase decision, such as, is the sole soft? So he has to speak to a salesperson. He talks to the salesperson on his phone, gets the answers he needed, and decides to buy the sneaker. As Johnny is a customer of the store, his card was already registered for future purchases. Actually, the purchase is quick and easy. In the message Johnny received, there was a pay now button and he completes the purchase without making efforts. All you have to do now is wait for your product to arrive. A few days later, Johnny receives an identified message and chooses the best day and time for receiving the sneaker from the options given. He also confirmed that he would be at home to receive the product. On the scheduled day, he receives his product, but unfortunately, the sole wasn't as soft as Johnny expected. With those sneakers, it wouldn't be possible to run as he wanted to. Then, he visits the company's website and goes to the customer service area. he chooses to send a message by chat he talks to the support team and agrees to return the product johnny explained what he needed and the salesperson suggested another sneaker model ideal to run but the store didn't have his size in stock so the salesperson asked if he would like to be notified when his shoe size was available in stock johnny replies yes seven days later No one had picked up Johnny's sneaker. As his order was opened, the platform's intelligence knows that new promotions should not be sent. Very angry. Johnny made a post on Instagram tagging, at Top Store. A few minutes later, he receives a direct message on Instagram from the Top Store support team. They agreed that within 24 hours, the sneaker would be picked up at his home. Johnny was very pleased because the problem was solved. 48 hours later, Johnny receives a message informing that the shoes he wanted are back in stock. And to his surprise, he received a coupon to buy extra items. After 30 days, Johnny checks the card bill and realizes that the first purchase had not been refunded by the store. Then he decided to call the store. He saved the contact on his phone. At the end of the call, he is targeted to a satisfaction survey in which he scores 2 on a scale of 0 to 10. Very angry, he hangs up the phone. Johnny receives an identified message asking if he would like to talk about the incident. Johnny answers yes. Johnny's phone rings. The call had the logo and the reason for that contact. He answers right away, and the situation was solved. Johnny is happy. and posts on his social media saying, Top Store made me feel unique. What an incredible journey. Mistakes happen, but it managed to surprise me even when we had problems. Top Store built a unique journey and experience for Johnny with Zenvia's customer experience platform. Build a world of experiences with Zenvia.

Hello, everyone. And thank you for being with us today. I got to say, I love this video. The first time I saw Johnny's journey was back in December 21. At that point, I worked with Zenvio for less than three months. And that was the moment when I understood what we do and when we're going. So I hope this video was enlightening to you as it was for me a couple of months ago. Now, before I jump specifically into Q2 numbers, I would like to highlight that this is the fourth quarterly earnings we published post our IPO. So it's important for us to emphasize the improved results quarter after quarter after quarter reflects how the proceeds from our IPO were critically allocated to M&A and R&D, which puts us exactly where we plan to be, contributing to our accelerated transformation to a SaaS company. That's what this snapshot of our Q2 and first half 22 numbers show. It has been a strong quarter, both in terms of organic growth and acquisition integration into our results. These numbers have already consolidated two months of MovieDesk since the transaction closed in May. We recorded R$ 204 million in revenues for Q2, an increase of 50% year-over-year due to a solid client-based expansion of 37% and the consolidation of MovieDesk over the past two months. The growth in the first half was even better, with a 55% year-over-year increase, totaling R$ 402 million in revenues. Of this total, 70 million came from the three recently acquired companies. The acceleration of our transformation to a SaaS company is also already positively impacting our margins. The gross margin for Q2 stood at almost 38%, a solid increase of 5 percentage points from Q2 2021, while for the first half, the gross margin was 35.8%, up 5.6 percentage points from the year before. As you will see further in the slides, these numbers are all within the guidance range for the year. As of Q2, we are starting to report results under a new breakdown, one that is more aligned with our decision-making process and will make it easier for you to understand what we do and where we're going. The format change is also driven by the announcement we made in mid-June on the evolution of our business areas, CPaaS and SaaS. While the CPaaS business still generates 71% of our revenues, over half of our gross profit is already coming from SaaS, which actually makes us a SaaS company. So let's take a deeper dive into our SaaS numbers. Revenues originated from our SaaS business, which is now headed by Rafael Godoy, our former CMO, totaled 115 million reais, with a monthly revenue recurrence of over 80%. This means that we are talking about an annual recurring revenue of this business, including full consolidation of MovieDesk at almost 230 million reais as of June, and almost 280 million rises of December 2022. We currently serve over 6.5 thousand SaaS customers, generating an adjusted gross margin of 66.5%. Other important metrics are the NRE of 120% and a CAC payback of approximately 11 months. Keep in mind that these numbers are just a fraction of the total addressable market for SaaS services in Latin America, is expected to reach 29 billion reais by 2026 according to IDC. Out of these almost 30 billion reais in TAM, 60% is white space and we have jumped from zero to slightly over two percent market share in just one year. So there's a huge opportunity for us to continue growing our SaaS revenues at the 50% level we've been growing, bringing Zenvia to another level of size and profitability. Our CPaaS business, now headed by the CRO Chris Franco, is also very healthy and continues to expand. Although the future growth of the company will be coming mostly from our SaaS business, there is value in our CPaaS business that cannot be ignored. For 2022, this business is expected to reach around 600 million reais in revenues with a gross margin of approximately 23%, generated by almost 9,000 clients. CPAS is a fast-growing market in Latin America, which is expected to multiply by 3.5 times in the next five years, from a total market size of 3.5 billion reais to nearly 19 billion reais, according to IDC. Moving on to the next slide, you can see that in this quarter, half of the growth came organically, and the other half from acquisitions. These results fully consolidate the one instance data and consider only two months of movidesk. Together, the three companies contributed approximately R$ 70 million to our consolidated net revenues, while the organic growth brought R$ 73 million. This combination of solid organic growth with M&A positively impacted our adjusted gross margin, which ended up almost 6 percentage points to reach 35.8% in the first half. And in the second quarter, our margin has already reached 38%. All these metrics are within the guidance range for the full year, as you can see in the next slide. Our total revenue growth and adjusted gross margin for the six months of the year are both within the guidance range. For the second half of the year, we expect to continue to focus on integrating our M&As and improving profitability as we add a full six months of movie desk gross margin into our numbers. We expect to generate positive EBITDA during the second half of the year, while our operating cash flow should already be at a break-even in the next six months. Finally, I would like to say that we know that funding gap is a concern. While this issue does not prevent us from slipping, we do not live in denial. We have been working on several different alternatives, and we expect to be able to announce something to you in the next coming months. With this in mind, we can now move to the Q&A session.

We will now begin the Q&A session. Once again, for this Q&A, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will be then announced and you will be able to ask your question live. At this point, I request you activate our microphone will appear on your screen. If you prefer not to open your microphone live, please write out no microphone at the end of your question and your operator will read your question aloud. Our first question comes from Lucas Chaves, Sales Site Analyst, UBS.

Please, Lucas, you may go ahead with your question.

So, hi, guys, and thank you for having my question. So, how are you seeing the organic growth in client terms? And could you provide more info on the integration with move desk clients, please? And if I am allowed a second question and in line with the first, how was the price dynamics in this quarter? Thank you.

Thanks, Lucas, for your question. So I'll start on a more quantitative view, and Cassio can add from a qualitative view and how competitive dynamics are, especially on the CPaaS business. As you know, we've been focusing our results and our operations on profitability. And specifically this year, what we've done in first half and the second half of this year, in this first quarter and second quarter of this year, was to pass on to prices the higher cost that the telco operators are charging us. So we did have an impact, especially in Q2. We lost approximately 500 clients on the CPaaS business. And that's related, as I mentioned, to profitability. The flip side of it is that we're still growing our business organically about 30% a year in terms of revenues. And the positive, obviously, is that gross profit expanded more than expected. It was a good quarter. Even in terms of EBITDA, when we clean out one offs from EBITDA, we generated an EBITDA that was negative only two million reais, so practically breakeven. And we're already running, when we look into the second half of this year, as we've been guiding, that we're already running with a positive EBITDA margin. So it has an impact when we pass on to prices. But we've decided that at this moment, with all the difficulties that tech companies are having in terms of funding, we decided that we need to focus on profitability. Cassio, I think you can go ahead with a more qualitative view.

Yeah, in terms of small customers, I mean, very, very small customers, we do have some that are more transactional prepaid that don't create lots of value for the long run. So we're focusing on customers that we can upsell and sell continuously. Thus, the amount of customers can vary depending on how we're focusing more on recurrent than transactional customers. So that's what we'll be doing. And looking from, you asked about MoviDesk, right? So we're already working together with MoviDesk Corporation as being part of Zenvia portfolio. That's why we're rebranding it for a Zenvia service. And we are generating customers from both ways, both customers coming from Movedusk and getting other products from Zenvib and all the way around as well. So they're doing pretty well in that sense, even though it's pretty early weeks of integration going on. That's why we have a very interesting perspective looking forward to the end of the year in 2023 in terms of combined growth of all the SaaS solutions.

Thank you. That was very clear. Thank you.

And I think you had also a question, Lucas, on movie desk integration. I don't know, right?

Yeah, that's what I meant. Integration coming in terms of client generation from both ways.

Okay. Yeah, yeah. Our next question comes from Diego Aragão, sales site analyst for Goldman Sachs. Please, Diego, you may go ahead with your question.

Yes, good morning, guys. Thanks for taking my question. I guess the first question, I just want to understand the organic growth in the second quarter, especially because if I'm not Mistaken here, it seems that you have like a massive deceleration in the quarter relative to the first quarter. So if you don't mind just commenting on that, that would be great. Thank you.

Thanks, Diego. And you're right. The organic growth accelerated in Q2 versus Q1. And the main reason, as we mentioned, is that we decided to take a more conservative stance and generate more gross profit, gross margin and more EBITDA. So you're right. It has accelerated. It will depend on how the competitive dynamics moves forward. We reiterated our guidance. We continue to expect organic growth to be slightly above 30% for a full year. But that will depend ultimately on the competitive dynamics going forward. And obviously we can move prices up and down depending on how aggressive we want to be in terms of revenues. But again, as of now, it's important for us to emphasize that while we continue to see total revenue growth still at about 50% a year, we decided that we need to focus on profitability and generating cash flow rather than simply growing. So if we need to decelerate slightly, in terms of organic growth and total growth, that will be done as long as it generates more EBITDA. By the end of the day, we're focusing on generating cash flow and EBITDA rather than focusing on revenue, especially because, as you know better than we do, investors are not paying any more on EV to sales. They're paying on EV to EBITDA, if not EV to... Or PE, sorry. So that's why we decided that it's more important for us to generate cross-profit and EBITDA than to focus solely on... on revenue growth.

Understood, Shai. Thank you. Thank you. I really appreciate your transparency here. So look, the second question is related to your balance sheet. I mean, you mentioned on the call that you are, you know, trying to find some options from here, but you have roughly 380 million in that debt, almost 200 million reais in current liabilities related to acquisitions and debt. So can you just, you know, just comment on the options you are considering from here? And also, if you can, you know, just provide like the reason to revise down the earn outs related to move desk, because we saw in the filings that the number expected right now, it's a little bit lower than what we saw last quarter. Thank you.

Okay, so let me start with you now. So those things are very fluid, right? So obviously we track on a quarterly basis how the business are doing and we do adjustments. There was a reason, for instance, if you look our reported EBITDA for the first half of minus 22 million reais versus the 9 million that we say it's the underlying recurring EBITDA for the first half, that has to do with the fact that we need to do adjustments in the year now. So for instance, in the second quarter, we booked an adjustment of almost 10 million reais for Sense Data and 4 million reais for Sirena because they delivered more than we, they were delivering up to that point. So we need to do adjustment and from an accounting perspective, all those adjustments, they do impact EBITDA. So that's very fluid and it goes up and down depending on how the companies are running versus the business plan. As to the funding gap, we are discussing several different alternatives from debt to equity instruments. So all of them are... available to us. We've been discussing what's most interesting for us in terms of cost, what generates more value for all the stakeholders. So it's a complex negotiation with several moving parts. And as I mentioned, I believe that we are close to be able to announce some of those instruments working. And unfortunately, at this point, Diego, we cannot discuss specifically, as you can imagine. But we are confident in the next couple of months, we'll be able to announce and I think that the funding gap will be an issue that is behind us in a couple of months.

Thank you, Shai.

So there is a question here on the web. On the cash flow side, looks like we generated 21 million reais in positive operating cash flow due to prepayment and supply. Could you elaborate a bit more on this? So yes, we did generate a decent operating free cash flow. It has to do with some of the working capital tools that we have. For instance, client prepayment with no cost, so anticipation at zero cost. Some negotiations with suppliers to pay longer. So basically, both improvement of DSO and improvement of DPO practically with no cost. And those tools continue to be used as we focus now more on cash flow. We'll continue to use all tools available to us to improve our working capital. This business is not a business that has a lot of working capital requirements. Actually, we get paid by our clients faster than we pay our suppliers, but it doesn't mean that we cannot continue pursuing to improve working capital. So we've been focusing on all tools available to us to generate more cash.

Again, if you have a question, please use the Q&A icon at the bottom of the screen to write down and I will 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. If you have a question, please use the Q&A icon at the bottom of the screen to write down your microphone and I will open a microphone. If you prefer not to open a microphone, please write down no microphone at the end of your question.

Our operator will read your question aloud.

I have another question here from the web. So on the margin side, does your full year 22 guidance imply a margin contraction in the second half? It does not. In the first half of the year, we deliver the gross profit of 35.8% accumulated. And we do have a guidance for the year between 35 and 36%. So as we reiterated this guidance, the second half gross margin should be pretty much in line with the first half gross margin.

If I can add Shai here, it's also because an effect of revenue mix We still expect growth of our margins, but as we go, we have the fourth quarter at CEPAS have a natural seasonality due to Black Friday and also Christmas. We expect to have revenue. The CEPAS revenue represents a little bit more than when we compared to the first half of the year. Due to this revenue mix, you may think that, okay, if you're delivering a bit more higher here and you expect to start to grow faster, yeah, that's all true. But we have a revenue mix between the first half of the year and the second half and surpassed due to natural seasonality.

Another one from the web.

On your new positioning, can you tell us how was that received by clients? Do you have early stages evidence of how things are going? I think, Cassio, can you...

Yeah, sure. We're getting lots of feedback from customers that they're getting to know all of our products now that it's easier for them to understand how they can apply their own businesses. So we're starting to get cross-sell opportunities because it became easier to understand what each product is aimed for in terms of processes. It's a bit early to get that quantified. But we do see that happening with customers when we are engaging with them. We're also structuring better ways for customers as they enter our sales process to be clearly identified in their needs so they can start using the best product for them. We're doing that with both former solutions and also the new acquired companies that are also part of this portfolio. That's what I sort of the former question about MoviDesk and Allsense data now being labeled as the service and the success. So we're getting this better understanding of the portfolio working out, not just in cross-sell, but also in customer acquisition. And we expect them in the following quarters to have that quantified. Of course, it's not that easy to try to understand if that's exactly the reason why we are seeing those moving in terms of customer acquisition and cross sell, but we are seeing that happening. So expect to see positive results of that unification of our portfolio and position.

Thanks, Cassio.

As a follow up to that, there's another one here on the web. Can you comment on the specific competitive dynamics on the SaaS and if you're seeing any of the global players playing differently, more aggressive or not versus your new position?

Yeah, in terms of SaaS competition, we do have two kinds of competitors. We have global players. and we have a small niche players we see that global players they tend to move pretty slow in terms of adjusting their offerings for specific parts of the world which gives us a very interesting dynamics of becoming more present in the markets that were solely being served by global players and now we're entering at those markets and it's getting pretty interesting to get some big customers using your SaaS solution. So it's doing pretty well in that sense. Looking at SMBs, it's a pretty open space. Most of these customers are still in a very simple digital solutions, meaning email plus website kind of dynamics. And then we bring all these structure solutions that can leverage from the ways for them to sell more and to serve better their customers. they see that value and they start using that kind of solution. So pretty much opening up the market for SMBs across the region. We don't see very strong competition from the small niche players on the respective market.

Again, if you have a question, please use the Q&A icon at the bottom of the screen to write it down and I will open your microphone. If you prefer not to open your microphone, please write down no microphone at the end of your question.

Our operator will read your question aloud. This concludes our question and answer session.

I would like to turn the conference back over to Mr. Cassio Bobson for his closing remarks.

Well, thank you very much all for spending the time here to get to see the evolution of the business. We're very optimistic about everything that we've been delivering in this first year as a public company. We're doing pretty well in terms of growth, in terms of market expansion and portfolio now being unified, combining both R&D initiatives and M&A operations that we did. over the last couple of months. So all these have been combined to create a very strong and competitive platform for customer experiences and the way we see that companies are transforming their customer journeys using digital and we are making that transformation happen. So thank you very much for your time and see you in the next release. Thank you very much.

The conference has now concluded. Xavier Ayer is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may have now disconnected. Have a nice day.