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Operator
Good morning and thank you for standing by. Welcome to Zenvies Q2 2024 Earnings Conference Call. Today's speakers are Mr. Cassio Bobsin, Zenvies 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 on 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 we'll 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 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 our speakers for today, Mr. Cassio Bobsin, founder and CEO. Sir, the floor is yours.
Cassio Bobsin
Hello, everyone, and thank you for joining us at Zenvia's second quarter 2024 earnings call. I'm Kasia Babson, Founder and CEO. Thank you all for being with us today. Let me start by sharing with you that this quarter has been a significant one for us, as we have been laser-focused on rolling out our Zinti Customer Cloud solution, and I'm pleased to report that the response from our clients has been extremely positive, with healthy levels of recurring revenue, churn, and cross-adaption. We have also introduced in June our GenAI chatbot solution. This cutting-edge innovation delivers substantial value to our customers, as it is so simple that a chatbot can be built in just under six minutes. I'm happy to share that in these two months since its launch, about 100 companies across eight industries in Latin America built their chatbots. We are confident this number will keep increasing. Chatbots are evolving more and more and are expected to become the primary customer service channel for at least 25% of all global businesses by 2027, according to Gartner. This shift represents not just a simple automation, but a significant enhancement of the customer experience. Here at Sandia, our long-term vision is to revolutionize customer service and business processes automation with the smarter and more intuitive chatbots. We're leading this transformation in Latin America, offering fluid and personalized solutions that boost efficiency and enhance the customer's experience, and they're more profitable to us. In terms of next steps, additional features of our GNN AI chatbot will include real-time sentiment analysis, continuous learning from past interactions, and seamless integration with multiple systems. We're unlocking endless possibilities for the future of customer experience, all with the help of AI. These advances highlight the tremendous opportunities ahead and reinforce our commitment to driving growth and solidifying our leadership position in the market. The dedication of our team and the enthusiastic feedback from our clients attest our confidence in the transformative potential of these solutions. We're committed to continuing this momentum and exceeding expectations as we move forward. Now, I'll hand it over to Shai to cover our performance in the quarter.
Zinti Customer Cloud
Thank you, Cassio. Good morning, everyone. Let's start on slide five. Here's a snapshot of our performance in the second quarter and first half of 2024 compared to the same periods of last year. As you can see, we are happy to report solid numbers in both periods. The second quarter 2024 results came again in line with our expectations. combining strong revenue growth and strict expense control that resulted in an EBITDA of almost R$34 million in the quarter and R$57 million in the first half. When looking at the last 12 months, our EBITDA totals R$110 million, allowing us to reaffirm our R$120 million to R$140 million full-year guidance for 2024. Our revenues grew by 20% year-over-year in the second quarter of 2024, reaching R$231 million. This growth was matched by a 20% increase in adjusted gross profit for the same period, while our adjusted gross margin remained stable at 43.3%. This is right in the middle of our 2024 guidance range. Our EBITDA figures also showed significant strength, with both periods recording more than double the EBITDA compared to the same period of last year, attesting our continued operational efficiency and growth. Let's now dive deeper to understand these results. Both SaaS and CPaaS kept expanding by two digits in the second quarter and first half of 24, with the revenue increase driven mainly by large enterprise and bold segments. In the CPaaS business, the performance keeps reflecting our ability to grow while maintaining profitability at healthy levels, leveraging on better cost structure. CPaaS revenues grew 22% in the second quarter after growing 23% in the first quarter and 30% in the fourth quarter of last year. This attests to Zenvia quality and market leadership. Our SaaS business grew almost 16% in the second quarter compared to the same period of last year. The expansion came primarily from large enterprise customers, especially in the consulting business that has a low comparison base in Q2 2023. Looking ahead, we expect SMB clients to be the main growth driver of our new Zenvia Customer Cloud. When we look for the figures of the semester in the graph on the right of the slide, we see mostly the same picture, with growth variations that are very similar to the quarter numbers. Let's now take a better look on how this expansion has translated into a balanced and profitable portfolio mix. We continue to pursue and convert revenue opportunities in the CPaaS business. Particularly in the second quarter, we gained some volumes with unusually high margins from certain large enterprises, expanding CPaaS contributions to our revenue mix. The second quarter number shows SAS reaching 34% of net revenues and 42% of gross profit, while CPAS made 66% of net revenues and 58% of gross profit. In the same quarter last year, we had just a little bit more of SAS revenues, 35% versus 65% of CPAS, that translated into a 50-50 participation in the gross profit mix. As you know, a higher CPAS participation in the revenue mix impacts our margins. But I would highlight that the focus here was again on capturing volumes in CPAS that are converted directly to EBITDA, given that we do not need the initial GNA to generate that revenue. Here on slide 8, you can see exactly what I just explained. As our growth this quarter was mainly driven by large enterprises in both segments, and with a much higher CPAS participation, we were expecting some decrease in margins. We recorded almost 38% CPAS margins and 54% SAS margins in Q2-24. For the half year, the margin numbers were very similar. The lower SAS margins are related to the mix of large enterprises with lower margins. This decrease was totally offset by the higher than expected CPAS margins that we do not expect to be repeated going forward. The performance of both segments drove our consolidated margins. The adjusted gross margin remains stable when we compare the quarters. Worth noting here that we are reporting margins that are well within the guidance range, all according to our plan. And more important than looking at the margins as percentage, we highlighted gross profit expanded 20% year-over-year, or R$ 17 million, which is one of the drivers for our EBITDA more than doubling. The other driver for EBITDA expansion is our discipline on G&A execution, as you can see in the next slide. As I mentioned at the beginning of my remarks, we remain laser focused on keeping costs strictly under control. We have been growing the top line by double digits without adding additional GNA, which enabled us to more than double our EBITDA in both periods. In fact, we are doing this while bringing down our GNA as a result of increased productivity. This led the GNA's percentage of revenues to decrease to 14.4% in Q2 2024 from 19.4% in Q2 2023, representing a 500 basis points drop, the lowest level since our pre-IPO years, and a key factor positively impacting our EBITDA. When we compare the semesters, the drop was of 400 basis points, reaching 14.5% of revenues. Obviously, we are very happy with our EBITDA expansion we just discussed. But we cannot lose sight of how this EBITDA is converted into cash. So here we have a view of EBITDA minus CAPEX. In the first half of last year, when we deducted the CAPEX from our EBITDA, we still saw a negative figure. Small but negative. This year, we generated a positive R$ 24 million from the EBITDA- CAPEX. Also, if we consider the midpoint of our EBITDA guidance of R$ 130 million for the year and that our expected CAPEX should be around R$ 50 million, this index is projected to be positive at R$ 80 million for 2024. EBITDA- CAPEX is a crucial metric for assessing our ability to generate cash flow from our core operations after accounting for the necessary investment in the business. This matrix not only highlights our operational efficiency, but also helps understand how well we are positioning ourselves to leverage, fund future growth, maintain financial flexibility and reward shareholders. Since we expect that our EBITDA will increase at a faster pace than our CAPEX, as it has been the case for the last three years, we believe we will be able to start leveraging our balance sheet by H2 of 25. Until there, we are working to obtain more flexibility in our cash flow through new data or equity. On slide 11, we are reiterating our guidance for the full year 2024. Our revenue growth of 19% in the first half of the year is tracking at the high end of our 15% to 20% full year guidance. In terms of margins, we are forecasting gross margin in line with 23 figures between 42% and 45%, and our first half results of 42.7% track slightly above the midpoint of the range. And finally, in terms of EBITDA, our first half of the year came in line with our expectations, including the seasonally weak first quarter. Considering second half seasonality, especially Q4, we are confident in reiterating our EBITDA guidance of between 120 and 140 million reais. To wrap up, let's talk about the next steps that we have been discussing with our board. The conclusion of our liability management in the first quarter, which included both capital raise and debt refinance, was an important step to better align our cash flow from operations to the financial requirements we have. With greater financial flexibility, we can focus on executing our strategic planning, accelerating profitable growth and leveraging the balance sheet. As we roll out Zenvia Customer Cloud, that Cassio mentioned in his prepared remarks, we become even more confident that it will accelerate our organic growth. We are also preparing to expand organically outside Brazil, with a focus on Argentina and Mexico, where we already have operations and where we see high growth potential. Once again, we appreciate your continued trust as we move ahead. We are committed to building a profitable and exciting future for Zenvia, maximizing value to our shareholders. With this, we conclude our prepared remarks and ready to take your questions.
Operator
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 a question live. At this point, a request to activate your microphone will appear on your screen. If we prefer not to open your microphone live, please write no microphone at the end of your question and our operator will read your question aloud. Our first question comes from Gustavo Farias, Sales Site Analyst from UDS. Gustavo, we are now opening the audio so that you can ask your question live. Please go ahead.
Gustavo
Hi, guys. Hi, guys. Can you guys hear me?
Zinti Customer Cloud
We can.
Gustavo
Hi, everyone. thank you for taking my questions uh two questions from my end uh the first one uh regarding uh the migration of the time base to uh xavier's customer cloud i'd like to know if you could put more color on has been the feedback from clients uh what kinds of clients you expect to have going forward in terms of large enterprises versus SMB. Just to confirm our understanding, your focus will be on SMB. Just like to confirm that. And the second one, it's regarding the client-based cleanup that you mentioned this quarter on the report. I'd like to know if it's already over or should we expect some more base cleanup for next quarters. That'll be it. Thank you.
Cassio Bobsin
All right. I'll take the first part of the question and then Shai will take the second part. So talking about migration of customers to Zenvec Customer Cloud. We first started with launching this new platform for new customers. So we have the cohorts of new customers coming from a portion of our demand generation already using this new platform. And we're seeing a very interesting increase in the usage in retention and cross-adoption and deep adoption, which is translating it to a very, very healthy profile of these cohorts, comparing to what we had on the standalone solutions before in the Customer Cloud. We've been rolling out the migration of all of our products to become a part of the customer cloud. project that is being rolled out we expect to finish that in terms of migration of products up to q4 this year and a little bit up to q1 next year and at the same time we are migrating customers from our former solutions to this new platform that is also being rolled out we're still the early days of that but we're already seeing that we have a very good reception from these customers because they are able to have access to more features, are usually paying the same amount in the beginning. I mean, they migrate and they pay the same, but have access to more features. And as they keep using more, then we benefit from this usage with the volume-based platform. business model that we have that make these customers be more monetized as they grow their usage so as we're rolling out this migration of customers we expect that this will increase both customer retention and also customer expansion that's what you're already seeing in the courts of new customers and about customer size and profile for these new solution we're seeing adoption from uh small medium and large companies we have of course as we launched we launched more towards smbs but as we are approaching our enterprise customers to with this new platform we're having adoption of huge customers of this new platform uh and we uh we're very uh i mean happy and glad that they're already seeing value in this new platform. And we expect as we roll out to all of our customers this platform to have improvement in both SMBs and enterprise in terms of both retention and expansion. And Shai, I think you can now have the second part of the question about cleaning up the customer base.
Zinti Customer Cloud
Thanks, Cassio. So, Gustavo, pretty simple. We understand that most of what we needed to do was already done, so we don't expect anything relevant going forward.
Gustavo
All right, thank you, guys.
Zinti Customer Cloud
Hugo, I see some questions here on the web. I'll take them, I'll read them, and then we will report to see if we have live questions again. So congrats on the progress, particularly in resolving the earnings gap. Two questions, first on margins and the other one on working capital. On margins, the company's margins for both CPaaS and SaaS vary considerably a bit quarter to quarter. Over the past three years, CPaaS margins have been as low as 20s and high as high as 40s, while SaaS has been as low as 40s and as high as 60. Beyond customer size, what is the best way to think about the long-term margin profile of Zenvia, especially as it scales? Cassio, I don't know if you want to go on a more helicopter view and then I can go.
Cassio Bobsin
Yeah, sure. We've been investing a lot in the creation of the SaaS solutions and we expect that these investments over the last two years are now starting to leverage the growth of SaaS as we expect this to happen in the next couple of quarters in a higher pace than CPaaS, which will naturally bring our margins a bit higher in terms of revenue mix. And the variation of margins on CPaaS It's mainly a customer mix. There's this variation of different customer profiles over time, as it is mostly volume based, depending on seasonality and depending on negotiations, especially on high volume, low margin customers. Sometimes we have some boost on high volume customers with lower margins, and this creates fluctuation of CPS margins. Looking at SaaS, it's mostly about the revenue mix of different products in the portfolio. As we acquire companies and we combine that with our R&D solutions, each has its own profile of cost structure. uh sometimes uh we what we see in the terms of variation is that one solution is growing at a faster pace and carries different margin we expect that uh our margin at the long term as we've been uh as we gave tonight in our ipo our long-term range will probably be uh beyond uh 50 on long term as we have expected the SaaS portion of the business to become a long-term majority of our revenues. But those forces will always be combined with some of the CPaaS volumes going on that will at some point vary the margin profile of the company.
Zinti Customer Cloud
Yeah, thanks. So the only thing I would add here is as we move more and more, all the businesses to the new model on the design, the customer cloud, then it becomes on a similar to SAS, right? So it's a monthly subscription, it tends to soften, especially on the pure channel side as well. So that's the only thing I would add here. On the second part of the question here on leverage, what is the best way to think about the negative working capital? I assume there's a significant amount from telcos that continue to be pushed out since late 22. Would be useful to understand if there is any liquidity gap related to this or does the company have agreements in place to keep extending this out? So that's a good question. We've been focusing a lot on managing our working capital since mid of 22. By nature, this business does not have negative working capital. We usually receive from our clients before or at the same time that we have most of our costs, which is the SMS that we acquire from the telcos. So there's no negative working capital by nature on this business. Obviously that we'll always do the effort as we've been doing since mid of 22 to improve both our DSO and DPO. And we'll keep negotiating every time that we see room for that. to postpone the payments for the telcos or to anticipate or to do deals that we can have prepaid from clients at interesting cost. So it's a matter of analyzing opportunities versus cost of issuing short-term debt. So as simple as that. There's no specific agreement with the telcos, but we understand that our relationship with the telcos is very symbiotic. They depend on us, we depend on them. So it's been a healthy relationship from this perspective. Another question here. FX losses are up significantly in this quarter. What was the driver for the increase? The main reason for these effects is that it has no cash impact. So just to make it clear. Basically, we have some clients that we invoice them abroad, outside of Brazil. So what happens is that we incur the cost in local currency in BRL. We then invoice them and the timing between the day that we invoice them and register the invoice on our balance sheet and the day we are paid, there could be some differences. Since the cost is in BRL and we end up receiving in BRL, it's just a matter of accounting these effects. It's related to the operations in Brazil, not outside Brazil. Another one here. Congratulations on great set of numbers. Two questions. How is the funding gap for the next year? Is Envia need additional capital in the near term? How is Envia progressing with the integration of companies and what is the work left here? Cássio, I don't know if you want to talk about the integration of the companies and then I'll go on the funding gap.
Cassio Bobsin
Yeah, sure. about integration of these companies who have this project we disclose what we call one same view and that is basically uh the project that uh finishes all these integrations we are very advanced in that project some of these integrations already finished and we uh and what we we mean as finished is now making these products these uh former products standalone products that were originated from these acquired companies to become part of same customer cloud that's the end game of these of hope integration process we expect all these to be finished the majority will be finished within the year and we'll have some uh components still uh to be uh finished on first quarter uh and second quarter next year but we are very uh uh uh proud to to say that we are now in this end phase of integrations hence we is already seeing some of the benefits in terms of efficiency already being translated in GNA reduction. And we expect up to the next year to still have more benefits of these integrations into our cost structure and that will of course, be reflected in the profitability of the company. So we're seeing these benefits, not only that, but also mainly by providing a better and more complete solution for our customers. So we're very happy to see that being finished.
Zinti Customer Cloud
Second part here. So on the funding gap, as you know, we announced earlier this year in February a liability management, which included rollover of the bank loans that we had, also renegotiation with extension of the period for payment on the seller's finance related to the M&As. and finally a capital injection by Casio of 50 million Reais. One important thing about this is that one of the benefits of the renegotiation, especially in the sellers finance is that we are able at the discretion of the company to convert up to 100 million Reais into equity if needed to accelerate the leveraging of the balance sheet. So with that said, is part of our job to continue looking for alternatives, especially in terms of financing and alternatives to continue doing liability management if there are alternatives there. The fact that we are increasing The mix of our revenues that is subscription versus usage improves a lot the credit profile. So it puts us in front of us alternatives that we didn't have in the past. So that's something we've been looking at all the time. And in terms of equity, we need to be opportunistic. So we have an ATM at the market program running. So if there is any investor that needs liquidity, the ATM is there for this reason. So we've been very cautious on that to avoid a lot of dilution, but it's an important tool that helps us funding the business. By the end of the day, the leveraging funding gap, everything will have to come from our capacity to generate EBITDA. um another question here um this is uh for Casio uh you already using uh as per your comments a lot of uh AI uh do you have visibility on what should we expect on next step or features on this front sure we have uh several features being deployed in the customer cloud uh platform
Cassio Bobsin
uh and they range from as we already mentioned uh gen ai chat bots generation uh with these solution customers are being able to create chatbots in an average of six minutes and they go live within six or six minutes and we have lots of customers already benefiting from that up to uh co-piloting which means uh helping sales reps or customer service agents to give better contextualized uh answers to customer demands and thus uh improving customer i mean sales conversion and also improving customer engagement and taxation over customer support And we have different tools being deployed also for customer context analysis, sentiment analysis, and insights from customer behavior for improvement of campaigns. And this all is already deployed. And we've been working on some interesting features that utilize not only the conversation with customers, but also data from past customer transactions, the customer transaction history, and which correlations can be made with from these transactions so they can create better journeys that will help customers to buy more to engage more to renew to avoid uh churn and so forth and so on so we have uh lots of interesting things going on the ai is very practical we have practical use cases that are easy to understand and to utilize on a daily basis for our customers that's we're very happy to have this kind of technology now being made available and becoming cheaper and cheaper so we can create value for all of our customers
Zinti Customer Cloud
Thanks, Cassio. Here one for, I guess, Caio can take this one. Congrats on the G&A discipline. Is this the level we should expect going forward? Is the team size you have now enough for future growth?
Cassio
Yes, what I expect here is minor adjustments, but the team, the structure that we have now is enough to support all the growth that we have planned ahead. So all the growth in Graveney and Grossprod will leverage more DNA that we have in place right now.
Zinti Customer Cloud
Thanks. And a follow up here for you, Kyle. On EBITDA, is Q2 the level for the second half?
Cassio
The business naturally has a seasonality special in Q4 due to the Christmas and Black Friday and everything. So what we expect here is if we deliver the same EBITDA, we reach our guidance. But of course, where we're aiming is higher. So our expectation is the seasonality of the business will leverage the EBITDA.
Zinti Customer Cloud
Thanks, Kyle. Hugo, we don't have any further questions here. Can you just report to see if anyone has additional questions?
Operator
Of course. Again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down and we will open your microphone. If you prefer not to open your microphone, please write no microphone at the end of a question and our operator will read your question aloud.
Gustavo
Looks like this is it.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Mr. Cassio Bobson for his closing remarks.
Cassio Bobsin
Thank you, everyone, for joining us this call. We are very proud and excited about what we achieved in Q2 and hoping that over the course of the year we're able to keep our projections and our forecast, our guidance for the year. And we're building a very strong foundation for 2025. And so I'm very glad to have all you guys on board with us and see you next call.
Operator
The conference has now concluded. Zenvia'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.
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