Zenvia Inc.

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

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.

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.