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spk01: Good morning and thank you for standing by. Welcome to Zambia's QA 2023 earnings conference call. Today's speakers are Mr. Cassio Dobson, Zambia's founder and CEO, and Shai Shor, 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 our 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 castiel bobson founder and ceo sir the floors the floor is yours
spk04: Hello everyone and thank you for joining us at Zenvia's Q123 earnings call. I'm Cassio Babsi, founder and CEO. Thank you all for being with us today. Our results for the first quarter show growing momentum for Zenvia as we continue to focus on profitability. Three out of the four companies we acquired in the last couple years are fully integrated from an organizational structure perspective, and we are advancing on the integration of its systems and platforms, which will allow our SaaS business to fully capture synergies and benefit from one single platform. Customers are beginning to realize the competitive advantages of our unified CX SaaS platform to transform their customer journeys into digital. We are very excited with the continuous evolution of our Quantum platform and its solutions. that are now starting to leverage the massive generative AI opportunity, mostly from MLMs such as ChatGPT, that would clearly benefit companies' productivity and customer experiences overall. On the CPaaS business, we saw recovery of volumes, mailing from large clients with sustained margins, attesting to our ability to execute on this mature business and demonstrating its potential to generate cash, which is instrumental to fund the expansion of our SaaS business. Our focus moving forward will remain on profitability and capturing cross-selling opportunities. I'll hand the call over to Shai to go into more detail on our performance. I'll be back after that for the Q&A.
spk00: Thank you, Cássio. Hello, everyone, and thanks for being with us today. Let's start on slide five. In this first quarter of 23, we remain focused on our strategy to improve profitability while executing on our savings plan since the third quarter of last year, all in the face of a challenging economic environment. As we did in Q4-22, we continue to operate in Q1-23 with the correct balance between revenue growth and profitability, which coupled with cost efficiencies led to an EBITDA of R$24 million, making two quarters in a row of positive EBITDA. Also, it's important to highlight a very strong cash generation as a result of a strict working capital management. And again, we did this despite the challenging and more competitive environment that we continue to successfully navigate. Even though our total revenues dropped 9% 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 platform expansion, when excluding the consulting business, of 32% comparing Q1 2023 to Q1 2022. Our gross profit grew by 38%, adding 18 percentage points to our adjusted gross margin that reached 52%, which attests our full commitment and path towards profitability. Let's take a look at how each of our businesses is contributing to profitability. Here on slide 6, you can see the breakdown of our gross profit and margin mix by SAS and CPAS for the first quarter of 23 compared to the same period of last year. We can see good performances in both businesses with increased margins, which means that our focus on profitability is paying off. Our SaaS business reached the mark of 46.4 million reais in gross profit this quarter, a nearly 40% increase compared to the first quarter of 2022, reaching a gross margin of 68%, up 4 percentage points compared to the first quarter of 2022. The CPAS, in turn, delivered a solid 38% increase in gross profit when compared to the first quarter of 2022, reaching a gross margin of 42%, up almost 19 percentage points. Let's now look at this data in terms of weight in our financial metrics. We are well on our way towards transforming Zenvia into a full SaaS company, and we continue to gain momentum on this front. Our SaaS business reached an annual recurring revenue of R$59 million in the first quarter, which annualized totals almost R$240 million. Net revenue expansion in the SaaS business remained healthy at above the 120% level. Our SaaS services represented 38% of the total revenue in terms of gross profit, and we had a 50-50 result this quarter. We continue to explore the possibilities of generative AI to enhance our SaaS solutions portfolio, building off the integration of ChatGPT with Zenvia Attraction, which we announced in February. In March, we hosted our first ever Hackabot, an internal hackathon for humans to develop solutions for the end customer based on the ChatGPT 3.52. The solution developed during the Hackabot are already being tested for potential integration with our suite of CX solutions, with developments including improved context analysis of the conversation, grammar evaluation, and customer sentiment analysis. And earlier this month, we announced the integration of ChatGPT into Zenvia's chatbot, which can now be trained to search through and reuse documents already created within the company, enabling a wider variety of questions to have automated answers and opening many more doors for the future of the tool. This integrated chatbot is already in use by a major Brazilian insurance company. Let's now move to the next slide on gross margins. On this slide, we can see the evolution of our gross margin from the first quarter of 2021 until today. We keep delivering on the promises made during our IPO. We continue to expand our margins and have shown a 19 percentage points expansion from the IPO in Q2 of 2021 through the first quarter, and an 18 percentage points expansion compared to the same quarter of last year. We reached a gross margin of 52% in Q1, with our consistent results proving that we are walking the talk on our path to profitability. Looking ahead, it is worth noting here that we don't expect the gross profit for the full year to remain in the same level that we had in Q1. As for our guidance for the year, our gross margins should remain at a similar level compared to 2022. Moving on to the next slide. On this slide, we detail the progress towards cost reduction initiatives, which we started implementing in the third quarter last year. Following the downsizing of our corporate structure in the fourth quarter, combined with reducing non-personnel G&A expenses, such as consulting and travel, we recorded a 9.5% reduction in G&A expenses compared to the first quarter of 2022, reaching just over R$ 31 million compared to almost R$ 35 million in the same quarter of last year. On the graph to the right, we can also see the sequential improvement in our cost reduction effort in terms of percentage of net revenue. We made good progress in Q1, thanks to our savings plan and restructuring. But it doesn't really reflect all impacts yet. We expect an acceleration in the capture of savings in the following quarters, leading to a lower ratio of expense as a percentage of revenues. Let's move to the next slide. In this slide, we detail our EBITDA growth since the first quarter of 2022, which is a direct result of the decision to pivot Senvia into a SaaS company and bringing our performance back to the profitability path. It has not been easy, especially given the complex microenvironment, but as you can see, our focus on profitability is paying off. So EBITDA in Q123 was a solid R$24 million compared to a negative R$8 million in Q122 and positive R$23 million last quarter. It puts us on track to deliver on the top range of the guidance of the year. Zenvia's history of delivering profitable operation makes us confident in our capacity to deliver a solid EBITDA expansion in Q123, as we'll discuss in a minute. Let's move to the next slide. This slide is very important to us, as it shows that we have been able to convert EBITDA into cash. While EBITDA minus CAPEX was already enough to generate a positive R$13 million, total operating cash flow reached R$95 million this quarter. This is a result of better working capital management, especially due to higher anticipations from clients and renegotiations with SMS providers to more flexible payment terms. This working capital improvement, coupled with the extended earn-out payments, is enabling us to pay down debt and reduce our funding gap for 2023. I acknowledge we said in the last two conference calls that we are working on a solution for our funding gap for the first half of this year, and we are indeed, but this solid working capital is actually enabling us to gain time and negotiate better transactions for all stakeholders. We would like to emphasize that we don't see any additional difficulties, we are still working on options that include debt and equity amongst others, but we are also in a better position given how we have been managing our cash flow. To finish, we have already discussed this in our last earnings call, but I would like just to emphasize our EBITDA guidance for 2023 of between R$ 70 and R$ 90 million. Given the EBITDA numbers we delivered in both Q4 2022 and Q1 2023 of R$ 23 and R$ 24 million respectively, We are confident in our ability to deliver this solid EBITDA in 23, which is putting us on track to deliver the 15% EBITDA margin mid to long term level we presented in our 22 investor day. With this, we conclude our prepared remarks and we are ready to take your questions.
spk01: We'll 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 will 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. Our first question comes from Marco Nardini, cell site analyst from XP. Marco, we are now opening the audio so that you can ask your question live. Please go ahead.
spk03: Hello, good morning. Thank you for taking my question. I actually have two here on my side. The first one is a quick follow up regarding the top line dynamics on CPaaS. When do you expect to report top line growth in this quarter? together with this positive trend that you have on adjusted gross margin. And can you also give us a little bit more color on the competition this first quarter, please? And the second one is regarding the quarter-over-quarter drop in adjusted gross margin in the SaaS business and the increase in the downsell. Should we see more margin drop in these segments for the year? Thank you.
spk05: I'll start with the competitive dynamics and overall understanding of how things are doing in the CPaaS and then Shai or Kai can compliment on the numbers. So we're looking at Q1 and we have observing last predatory competition, which means less subsidizing on pricing amongst competitors on the space, which is helping us in Q4 to reach better margins. We've been working very hard into eliminating any kind of negotiation that could damage our gross margins in that sense. Hence, we had a bit of decrease on the revenues as we shifted this focus to achieving profitability with each customer, especially the big ones. And we expect, as we are observing these dynamics, to get back to our profile of growth in terms of volumes that translates revenues. Hence, we don't imagine that we're going to be able to keep the same gross margins as we go into higher volumes, which means higher revenues. So there's this kind of balance. between growing and the space with customers that have that bring a bit less i mean less margins that will kind of achieve uh margins a bit lower than that's why we project uh over the year not to get the same kind of uh level in the gross margins but trying to reach the revenue uh growth that we expect to now i think you guys can compliment me on the numbers yes
spk02: still regarding fee pass what we can expect is because we had we lost some of volume as Cassius said in the second half of 2022 we expect a growth on this business line on the second half of the year when you compare to 2022. talking about fast the quarter of a quarter performance was in fact especially include the consulting part of the business because it's related to the large client and the pipeline EQ4 due to the macroeconomic environment didn't perform as we expected. The sales cycle is longer due to the size of the client, but we already seen On Q1, this pipeline better performing, so better performance. So for the rest of the year, we expect the recovery for this specific business line that is focused on large clients. And also regarding the gross margin that you saw quarter of a current decline, it's a revenue mix. There's not some loss of profitability in FAS. So and we are in line with our guidance. So no worries here. I don't know, Shai, if you want to come up with one.
spk03: No, that's it. Perfect, guys. Thank you.
spk01: 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.
spk00: Eric, I have a couple of questions here. Let me start with them on the web. So first question on funding gap here. Still have some payments on the earnouts until the end of 26. With this profitability improvement, how are you looking into this? Do you plan to issue more debt? So the question here is, we acknowledge that there is still a funding gap, not only for some funding gap for this year, but probably until the end of next year. As of second half of 24 and first half of 25, we believe that our cash generation will be enough to pay for the earnouts that we have out there. So we are, as we mentioned in our prepared remarks, We are working hard and taking advantage of the very strong working capital management that we've been doing that is buying us time to find the best solution for us to solve the short-term and medium-term funding gap. Second question here is, could you please enter in more detail regarding working capital we saw in the quarter? How should we look at these numbers going forward? So we've been working very hard to change the way we look. We always looked into working capital and these are the positives of going through all the difficulties that tech companies have been going with access to funding. Um, so we've been improving a lot our, uh, processes, uh, focusing on both, uh, uh, and, uh, this, uh, specifically we entered with, uh, into a working capital, uh, transaction last, uh, in the, in Q3 of 22. in which Tuilio is anticipating us some couple of months in revenue, so paying in advance. This provides us with very good working capital and obviously more financial flexibility. We've been rolling this and we believe that we'll keep rolling this and kicking the can down the road. So you shouldn't expect any outflows out of this working capital. So you should continue at healthy levels. And on the other side, we've been negotiating with providers. We created... more recently, a procurement team that is renegotiating with all suppliers that we have, including SMS providers. And we've been very successful in managing better our DPO and this is behind. this business is usually not a business with intensive in working capital, but in any ways we are continue to work and we should expect working capital to continue helping us positively going forward, but obviously not in the same magnitude that we saw in this quarter. Let me see what else we have here. Two questions regarding AI. Do you see the investments in AI GPT-4 powered features impacting our margins and profitability in the near term? Do you expect GDP AI related features to drive higher messaging volumes, accelerating the CPS revenue stream? Castro, I guess you can talk about AI and how you see this impacting us.
spk05: sure uh we've been applying uh alarms such as gpt uh into the product and different parts of the product and these are usually for to accelerate the the usability and productivity of both managers that are using software or even sales reps or customer service agents that will get both on productivity. We expect that to be a scale across the next couple of quarters. It's just a bit soon to understand what will be the real effects on that as we are not yet into a scale kind of phase so we can really measure. We're working mostly with a beta phase for some customers on these different features. And we don't see a really impacting near-term change on the margins. We do expect that over time, that will bring lots of interest in the usage, especially on the automation side of our platform, which helps companies to reduce costs and bring more efficiency, which, of course, everybody is looking for that in their operations. Hence, we expect this to drive more adoption, especially going deeper into using our different features set of the platform. And looking at the CTAS space, of course, as we go into more automation and when we reduce costs for companies and they're able to leverage more skill, although it's not yet possible to measure that impact, that's something that we expect in the mid to long term. That's why we're betting that all this evolution in the AI space, especially on other labs, would It will bring for us, a company that is focused on CX, lots of different levers to pull in order to bring more customers, more adoption, and more efficiency when using our platform to improve customer experiences.
spk06: Thanks, Cassio. Another one here.
spk00: What is the organic route of SaaS for this quarter?
spk02: um kayo i think you can uh you can take yes excluding the consulting part of the sales business as i said earlier that impacting q1 what are you seeing the other business lines is over 30 percent performer basis growth so still on the 30 percent uh growth on a performer basis excluding again the consulting part of this that was impacted due to the pipeline as i said earlier but we we already seen a better pipeline performance in G1, but the sales cycle is longer, so that's the impact.
spk00: What is the average financing cost of working capital financing? Most of the revenue anticipation transaction is about 12% a year. So it's considerably cheaper than our bank loans, which are approximately CDI plus 6%, which is now close to 20% a year. So the working capital financing is really attractive in terms of cost to us. And what is the annualized interest costs post Q1 with better financing option? Look, we will continue to spend about, and to your next question here, trying to get a sense of free cash flow estimation 23. So let's start with EBITDA and help you guys navigate through 23 expectations, right? So we guided for EBITDA of 70 to 90 million reais. Let's use the top end of the range, which is 90 million reais, given that in the last two quarters we delivered close to 24. So it's better to look from a top end of the range. So assuming EBITDA of 90 million reais for this year, we'll have to pay approximately 40 million reais in capex. And then we'll have give or take 40, 45 million reais in cost, in financing cost. So that gives you a sense of our free cash flow. 90 millions in EBITDA, 40 million in capex and 40, 45 millions in finance costs. I'll keep going here. On SG&A, you said you still have to capture what level should we expect going forward compared to this almost 18% you had in Q1. I guess, Caio, you can help us here.
spk02: Yes, because of the growth of the revenue, the amount of... We don't expect the growth as in terms of amount of expenses, but in terms of growth ahead of the revenue, we expect to be around 14% of the net revenue, the DNA expenses.
spk06: Thank you, Caio.
spk00: I have one more here. Guidance for the year, especially EBITDA, feels low or conservative compared to Q1. Can you elaborate on that? When we look into EBITDA trailing 12 months, so we are close to 55 million reais. That compares to our guidance of 70 to 90. Obviously, if we annualize both Q4 or Q1, we are tracking at probably closer to 100 million reais in EBITDA. So we are very confident that we will be delivering the 70 tonight, which is the guidance and probably and as all management should aim, we'll continue trying to do better than what we guided. but it's still too early in the year, right? Only one quarter. So at this time, we'll reiterate our guidance. But again, I would like to emphasize that we'll work very hard to continue with the same level of EBITDA that we deliver in the past two quarters and deliver more than the guidance, if it's the case. And those are the questions here. Eric, can you just report to see if anyone has additional questions?
spk01: Perfect. 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 on microphone at the end of your question. And our operator will read your question aloud.
spk06: So there is one more question here, Eric.
spk00: What is hindering you guys from doing a pro rata increase for all investors? So as we've been saying, right, we are not excluding any alternative to help us with the funding gap. We are working with all options that we have, including debt, including equity. All of them, all alternatives have their own process and timings. And we are working with them to, with all these options to come up with the best solutions for all stakeholders. So again, the good work in capital management and the strong cash flow that will generate this quarter buys us time to evaluate the best alternatives at the shorter period of time possible.
spk06: And Eric, I guess that's it.
spk01: Yes, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Castro-Bobson for his closing remarks.
spk05: Thank you very much, everybody, for joining our conference call. We are very excited with the results of being delivering and looking at the year ahead. We still got a lot to happen and we are very happy to be on track with our guidance and we expect to have some more good news on the next couple of quarters. So see you guys next time. Thank you.
spk01: Perfect. So the conference has now been concluded. Zambia's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect and have a nice day.
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