Zenvia Inc.

Good morning and thank you for standing by. Welcome to Zenvias Q4 2022 and full year earnings conference call. Today's speakers are Mr. Cassio Bobzin, Zenvias founder and CEO, and Chai Chhor, CFO and Investor Relations Officer. Please be advised that today's conference is being recorded and a 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 wish 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.

Hello everyone and thank you for joining us at Senvia's earnings call. I'm Cassio Babsin, founder and CEO. Today we're going to review our performance for the fourth quarter and full year of 2022. Let's start on slide four. When I look back to 2022, the main word that comes to my mind is integration. As you all know, integrating an acquiring company into a business is a complex task, especially in our case, as we're building a unified CX SaaS platform, which requires a full integration. So, I'm happy to report that we reached the end of the year with D1 and MoviDesk totally integrated into Zenview, and with earnouts already negotiated. This means we are now more than ready to fully explore the synergies that come from offering the most comprehensive CX SaaS platform in Latin America through a full suite of products, attraction, conversion, service, and success, and accelerate our growth. As we have been saying every quarter here, there is still a huge white space opportunity in the CX SaaS market in Latin America, and we have just begun to tap it. But there are also big opportunities coming from AI that I'd like to discuss with you. We are at the dawn of a new era, one where generative AI will generate massive opportunities within the SaaS industry, allowing hyper-personalization, behavioral prediction, and actionable insights. It is a brand new world for CX, and we are very excited to be a leading player in it, as we've been already integrating chat GPT technology in our platform. Throughout the year, we expect to drive a whole new set of automation and efficiency improvements to our platform as we take advantage of these new technologies that are being widely demanded by our customers. I will now turn the floor to Shai for his remarks. I'll be back after that for the Q&A.

Thank you, Cassio. Hello, everyone, and thank you for being with us today. In the last quarter of 2022, we kept executing our strategy focused on balancing growth and profitability. And I can affirm that we did that. We are reporting solid evolutions on gross profit and gross margin, which allowed us to generate positive EBITDA and operating cash flow. These were indeed the best quarterly profitability metrics since our IPO. And the first quarter where we surpassed 100 million reais milestone in gross profit. We did this despite the challenging and more competitive environment that we experienced not only this quarter, but most of the year. Even though our total revenue dropped 8% year-over-year as a result of our focus in a profitable CPaaS business, the SaaS business continues to be our growth engine, with a top-line performance expansion of 44% when comparing Q4 2022 to Q4 2021. Our gross profit jumped 65%, adding 26 percentage points to our adjusted gross margin that reached 58.6%, which attests to our full commitment and path towards profitability. Let's take a look at the same picture for the full year. For the year, we can see double-digit growth in all metrics. We grew revenues by 24%, gross profit by 68%, and gross margin by 12 percentage points, leading us to a normalized EBITDA, which excludes non-cash impacts from earnouts and impairment, of R$23.5 million. This is directly related to a combination of solid SaaS growth and more profitable CPaaS. added to our focus on strict cost control and cash preservation in the year. Let's take a look at how each of our businesses contribute into profitability. Here on this slide, you can see the breakdown of our gross profit mix by SAS and CPAS and its evolution throughout the year. We can see sequential increases in both SAS and CPAS margins, which means that our focus on profitability paid off. CPaaS delivered a solid 41% sequential increase and a 62% expansion when compared to the second quarter, when we started to see a more competitive environment. Our SaaS business surpassed the R$50 million gross profit mark this quarter, an 18% sequential increase leading to R$102.5 million in total gross profit. Comparing Q4 to Q2, the increase in gross profit was 33%. Let's now look at this data in terms of weight in our financial metrics. As we've been saying since our IPO, we are on a mission to transform Zenvia into a SaaS company. And I'm very proud to report that our SaaS business is close to reaching a quarter billion reais in size, with an annual recurring revenue of 239 million reais in December. Net revenue expansion totaled 124% in Q4 compared to 123% in Q3 2022. Even though Q4 is seasonally a strong quarter for CPaaS, because of high holiday sales like Black Friday and Christmas, our SaaS services represented 41% of the total revenue in the fourth quarter, a large sequential improvement from Q2, when SaaS was only 29% of total. For the year, we already see 34% of our revenues coming from SaaS. In terms of gross profit, we had a split result this quarter, with SaaS representing 53% of gross profit for the full year. Looking ahead, long term, we expect SAS to represent about 70% of our gross profit. We're just beginning to tap the huge white space in the SAS market in Latin America. We are working hard and confident on our strategic planning. Let's now move to the next slide to comment on the evolution of our gross margin. On this slide, we present our gross margin evolution since the beginning of 21. We have delivered on the promises made during our IPO. We have expanded our margins in Q4 significantly, a double-digit expansion from both the IPO and Q2 of 2021, as well as from the same quarter last year. From Q1 2021 to Q4 2022, it more than doubled. We reached a gross margin of almost 59% in Q4, taking the full year margin to 44%, as you can see in the orange bar to the right. This is above the top range of our updated guide for the full year 2022, and yet another proof that we are walking the talk on our path to profitability. Looking ahead, it is worth noting here that we do not expect cross-profit for 2023 to remain at the same leverage in Q4. We'll discuss this in more detail in our 2023 Guidance More minutes. Let's move to the next slide. In this slide, we show how organic and inorganic growth contributed to 2022 revenue. The three more recently acquired companies, D1, MovieDesk and SenseData, added 156 million reais to our consolidated net revenues for the year. This number compares to R$41.5 million in contribution in FURIA 2021, when we consolidated only four months of D1, two months of SenseData, and zero revenue from MovieDesk. It is worth noting that XMNA, our revenues grew 5% year-over-year, while our gross margin jumped a solid 32%, once again demonstrating the result of our strategy to focus on increasing the profitability of the more mature CPaaS business. Let's now address our efforts on the cost side that were relevant to our full year results. As of July of last year, we have begun implementing cost-curry initiatives, especially as we accelerated the integration of the acquired companies and started extracting synergies. In addition to reducing non-personnel G&A expenses, such as consulting and travel, among others, we also announced in November a downsizing of our corporate structure equivalent to 9% of the total workforce in Latin America. We incurred a one-time expense of R$ 5 million that was registered this quarter, mainly related to severance. In turn, we expect to capture approximately R$ 70 million in reduced costs in 2023 onwards, being R$ 40 million from the downsizing and R$ 30 million from the other cost-cutting initiatives. We have been pursuing more efficient operations in the second half of 2022 and will continue to do so constantly to improve EBITDA as demonstrated in the next slide. As a result of a very well executed strategy in a very complex environment, we recorded in the fourth quarter R$ 23 million in normalized EBITDA, evidencing the profitability of our operation. A closer look at the quarterly trend in this chart shows how our EBITDA improved quarter after quarter during the year, with Q3 putting us at break-even for the first nine months of the year, while Q4 led us to beat our guidance for 2022. During the quarter, we registered a goodwill impairment of 136.7 million in the SaaS business, related to the slower revenue growth in the medium and long term on the back of a more challenging macro backdrop, and a higher discount rate reflecting an increased perceived risk. Including the non-cash impact from the goodwill impairment and earn-out expenses, our reported EBITDA was negative 189 million reais in the quarter and negative 214 million reais in full year. You can find a detailed EBITDA reconciliation in our financial statements. Let's see how our full 2022 EBITDA compares to historical numbers on the next slide. Here you can see the evolution of our EBITDA metrics in the last five years. We are happy to see the reversal of the negative trend as a direct result of the decision to pivot Zenvia into a SaaS company, bringing this performance back to the profitability path that has always been part of the 19 years of our history. It has not been easy, especially given the complex market environment, but it has paid off. Both the quarterly trend we saw in the previous slide with a strong exit rate for the year and a history of delivering profitable operations shows in this slide makes us confident in our capacity to deliver not only a solid EBITDA expansion in 2023, as we'll discuss in a minute, but also a new record in EBITDA generation next couple of years. More than generating solid EBITDA, we have been very much focused on converting this EBITDA into cash. This slide shows that our operations generated a positive 27 million operating cash flow. This is a combination of our focus on profitability coupled with a strict working capital management, allowing us to maintain a healthy capex level to keep investing in innovation. Even after paying interest and amortizing debt, Our cash flow would still have been almost R$ 10 million positive in this quarter. Before we move to reviewing how we did against our 2022 guidance and provide guidance for 2023, I would like to quickly remind you of the agreement with D1, MovieDesk and SenseData to extend the payment agreements of the earnouts, which allowed us to drastically reduce our funding gap until the end of 2023, as you can see in this slide. We were able to reduce the total amount to be paid in 2023 to approximately R$ 62 million, down from R$ 420 million by extending the payment schedule to the fourth quarter of 26. To finalize, let's review our 2022 performance versus guidance and discuss our expectations for 2023. This slide summarizes our 2022 guidance versus actual figures. In terms of revenues, we remained within guidance ranges for all provided metrics, with CPAS closer to the low end, while SAS revenues were practically in the mid-range. In turn, all profitability metrics were above guidance. Gross margin came at 44%, above the 40% we guided, with both SAS and CPAS margins also above guidance. CPAS was 31% against 27%, and SAS was 68% against 65% guidance. The year-over-year evolution of the gross margin was 11.7 percentage points, well above that 7.7 percentage points at the top of the range. And finally, normalized EBITDA of R$23.5 million that was also above our guidance of between R$10 and R$15 million. With a solid delivery on our 2022 numbers versus guidance, we are introducing our guidance for full year 23. We expect our revenues to be between R$ 830 and R$ 870 million, implying a 12% top-line growth at the middle of the range, boosted by a 30% to 42% expansion of our SaaS business, while CPaaS should stay flat, reflecting its more mature stage. Our gross margins should remain at a similar level compared to 2022, as we expect the higher SaaS and the revenue mix should be offset by lower margins on CPaaS. Finally, we expect our EBITDA to be between 70 and 90 million reais, implying that our EBITDA margin should be close to 10% level, putting us on track to deliver the 15% mid to long term level that we presented during our 2022 investor day. With this review of a solid quarter and high confidence in our business for 2023, we conclude our prepared remarks and are ready to take your questions.