Zenvia Inc.

Good morning, and thank you for standing by. Welcome to Zenvies Q3 2024 Earnings Conference Call. Today's speakers are Mr. Cassio Bobsing, 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 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 Q&A session. For the Q&A session, we ask you to write down your questions via the Q&A icon at the bottom of your screen. Your name will then be announced, and you'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 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 our speakers for today, Mr. Cassio Bobson, founder and CEO. Sir, the floor is yours.

Hello, everyone, and thank you for joining us at Senvia's third quarter 2024 earnings call. I'm Cassio Babsin, founder and CEO. Thank you all for being with us today. The highlight of this quarter was the conclusion of the strategic plan we initiated back in 2018 when we decided to evolve from a CPaaS platform to become the most comprehensive customer experience SaaS in Latin America. After a series of acquisitions held before and after our IPO aimed at this goal, the official launch of Zymbia Customer Cloud in mid-October is the culmination of this vision. This was a significant milestone in our full commitment to enhancing customer relationships through a practical and easy-to-use platform, full of AI-driven solutions and data analytics to enable brands to create experiences that are personal, engaging, and fluid. while making brands sell more and serve their customers better. This innovative platform represents Zenvia's next generation of SaaS solutions, embodying the vision of our company outlined six years ago. At the same time, its launch serves as a cornerstone for our CX SaaS strategy for the next five years. The strategy is centered on driving organic growth and enhancing profitability, reducing leverage pursuing the optimal capital structure, unlocking and delivering sustainable value to our shareholders. Along with the launch of Zenvia Customer Cloud, we also made strides this quarter in streamlining our operations and becoming more efficient, resulting in a notable year-over-year reduction in G&A expenses as the percentage of revenues that has been having a strong impact on our beta, which is the main metric that we look at in terms of measuring our profitability. I'll now hand the call over to Shai to cover our performance in the quarter, and I'll be available for the Q&A.

Hello, and thanks for joining us today.

I would like to start with a snapshot of our performance. we are happy to report solid numbers in both Q3 and nine months of 24 with double digit growth in top line and profitability and a strong expansion of our EBITDA year over year as we move to meet our guidance for 24. The results of this quarter were impacted by three main factors. First, certain one-off temporary volumes in our CPAS segment that were opportunistic for us in terms of revenue, cash balance and EBITDA. The flip side is that this volume comes with lower profitability in percentage terms. But at the end of the day, our goal is to generate EBITDA in reais, not in percentage, which is why we'll continue pursuing opportunities in terms of revenues. That said, we don't expect the same one-off volumes in Q4. Second, the increase in our SaaS segment comes mainly from SMBs. The segment not only grew double digits on a year-over-year basis, but also on a sequential basis. And we see more and more SMBs adopting our platform, especially with the launch of Zendure Customer Cloud. SMBs are the companies that will drive our growth moving forward. And third, the performance of the enterprise portion of our SaaS segment, in which we continue to see a very competitive environment with new sales below expectations and therefore putting pressure on profitability. The stronger gross profit that we reported, coupled with the strict expense control that is in place in our company, boosted our EBITDA to R$41 million in the third quarter, growing almost three-fold compared to the same period of last year and reaching the highest quarterly level of the last three years. Year-to-date, EBITDA totaled R$98 million, up roughly 150% from the same period of last year. And if you look at the last 12 months EBITDA, it landed at 135 million reais, which is within our guidance range of 120 to 140 million reais. As a reminder, we're talking about the normalized EBITDA that excludes earnouts and non-recurring events. Let's now take a closer look at performance per segment. As you can see this slide, both SAS and CPS kept expanding by double digits in both third quarter and nine months of period of 24. CPS revenues grew 37% and reached an all-time high of almost R$200 million in the quarter, mainly because of these one-time opportunities that I just mentioned in the beginning of my remarks, taking the nine-month revenues to R$485 million. Our SaaS business delivered again an increase of 16% in the quarter compared to the same period of last year, the same rate we registered in the last quarter. This expansion came mainly from the SMBs, which is our growth engine and therefore is expected to gain share in our revenues next year. Sequentially, SaaS went up a solid 12% versus Q2. In the first nine months of the year, our SaaS revenues grew 15% year-over-year. Let's now take a better look at how this expansion has translated into our portfolio mix. As I mentioned in the beginning, we had a much higher participation of CPaaS in the mix of both revenue and gross profit in the periods because of the one-off factors I explained. As we always discuss here, a higher CPaaS contribution to the revenue mix impacts our margin, but I would like to highlight again that the focus here was on capturing these high volumes in CPaaS that are converted directly into EBITDA, given we don't need additional DNA to generate that revenue. Looking ahead, we have been investing a lot on the integration of the SaaS solution, and we expect to leverage top-line growth within the customer cloud. As we move more and more into it, integrating all the businesses to the new model on the Xavier Customer Cloud, the company becomes mostly a full SaaS model with monthly subscriptions, leveraging its leadership in terms of channels. Here on this slide, we discuss in more detail the adjusted gross profit and margins of both segments in the quarter. In this Q3, we recorded 102 million reais in consolidated adjusted gross profit, basically half from each segment, 50 million reais in SaaS, and 52 million reais from CPaaS, highlighting the boost from CPaaS of 37% this quarter. But the margins from both segments, as you know, are not similar. We recorded a margin of 58% in SaaS and 26% in CPaaS. While the CPaaS margin remained stable, the SaaS margin went down by 230 basis points year over year, mainly from the enterprise impact that I just explained. So the combination of higher CPAS in the mix with the lower SAS margin brought our consolidated adjusted gross margin down 230 basis points, landing at 36%. Despite that, when looking in the first nine months of the year, we are still very close to the full year guidance, as we can see in the next slide. So looking at the nine months numbers, we see that we recorded 296 million reais in consolidated adjusted gross profit, boosted by the 160 million reais from CPAS, which went up 28% from the same period last year. The SaaS segment in turn contributed 135 million reais, virtually the same amount from last year. The drop in the SaaS margins in the quarter is explained by the mix of large enterprises with lower margins that I mentioned earlier, but also coupled with increasing infrastructure costs related to the final phase of the integration of the acquired companies that we have been highlighting since the first quarter of this year. As the CPS mix in revenues increased due to the one-off opportunities, consolidated adjusted gross margin for the nine months reached 4.7%, putting us slightly below our guidance for the year. While management is never happy to see any number below guidance, we are much more focused on how revenues are translated into EBITDA, which is ultimately what will drive us to deliver the balance sheet. So let's discuss now our GNA, which is key to generating EBITDA. We remain laser focused on keeping costs strictly under control throughout this whole year. We are leveraging our operations as we have been growing the top line by double digits without any additional GNA, which enable us to more than double our EBITDA in both periods. In fact, in the year to date comparison, we are bringing down our GNA as a result of increased productivity. This led the GNA as a percentage of revenue ratio to decrease to 13% in nine months of 24 from 17% in nine months of 23, representing almost 400 basis points drop. If you look versus the same period in 2022, this is a drop of 540 basis points from the 18.5% ratio we recorded two years ago, when we first started our streaming line efforts. We are very proud to have been able to pivot the company this way, improving the productivity that is vital for this next phase of growth, as Castro mentioned in his opening remarks. Moving on to the next slide, Another key index that we like to highlight is our EBITDA minus CAPEX, which we believe is a crucial metric for assessing our ability to generate cash flow from our core operations after accounting for the necessary R&D in the business. This metric not only highlights our operational efficiency, but also helps you understand how well we are positioning ourselves to leverage fund future growth, maintain financial flexibility, and reward shareholders. As you can see in this slide, in the first nine months of last year, when we deducted the CAPEX from our EBITDA, we still saw a negative figure. small but negative. Now, when we look at these nine months of 24, our EBITDA minus CAPEX improved 52 million reais when compared to a year ago, and we see it now positive in almost 50 million reais. In the last 12 months, EBITDA minus CAPEX was almost 75 million reais. Now, with these improvements in cash generation in mind, let's discuss some updates on our next steps. As we just saw in the previous slide, We expect that our EBITDA will keep increasing at a faster pace than our CAPEX, as it has been the case for the last few quarters. And obviously, having an EBITDA that is more aligned with our capital structure will allow us to increase our investment in client acquisition, triggering an acceleration of organic growth. We have improved our leverage a lot since we resumed EBITDA to positive territory back in late 22. Putting into numbers, we have reduced our net debt to EBITDA from that period from over 10 times to 2.2 times at the end of September 24. We believe that from the second semester of 25 on, our cash generation will be more aligned with our capital structure. Until then, we'll continue to use working capital tools as well as seeking more flexible terms in existing laws. On the Latam front, we have already initiated our expansion outside Brazil. While it is still in the early stages, we expect to see a positive impact to our 2025 results. To finalize, as we approach the end of the year, we are reiterating our guidance for 2024. Our tactics and focus have been and will continue to be on growing organically and generating EBITDA to keep the leverage in the company. Once again, we appreciate your continued trust as we move ahead. We are committed to building a profitable and exciting future for Zenvia.

With this, we conclude our prepared remarks and ready to take your questions.

We will now begin the Q&A 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 your question live. At this point, a request to activate a 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 Ramon Enriquez Fonseca, analyst at Cellside UBS. Ramon, we are now opening your audio so that you can ask your question live.

Please go ahead.

Good morning, everyone. Thank you for taking my questions. Two from my side. First, could you please comment on how are you seeing competition in the a size segment, especially in large enterprises. And then we have seen an increase in total active customers in the quarter. How much of the net additions do you attribute to the launch of Zenvec customer cloud, please? Thank you.

Thank you for a question, Ramon. So we're starting at the beginning of the question about large enterprises and competition. We launched Zambia Cosmic Cloud, mainly focused on SMBs. Although we already have customers that are enterprise customers adopting our platform, we're still in the early days of that to understand how impactful will be adoption for large enterprises. But as we move with the adoption of Zambia Customer Cloud, we see that the value proposition we're bringing to the market is quite unique by connecting the different points on the customer journey. And that for SMBs, it makes these be the most important solution for customer relationships that these companies are using. And we are seeing that enterprises are also benefiting of that. I feel worried to understand how impactful that be, but we are very excited on these first large customers adopting the platform. In looking at the total active customers in the quarter, yes, we're having an increase, mainly because we're focusing on the customer cloud, as I mentioned, SMBs, and we're starting to get very good traction for both new customers and heavier adoption of current customers. And that goes into the last part of our question, which is about the cross-selling. we are seeing that these customers, these cohorts that are already using Zambia Customer Cloud, they have around 10 times a higher cross-sell comparing to what we had before. Because before we had to sell each of the second product that the customer would adopt would be like a new purchase from Zambia. But with Zempio Cosmo Quad, we eliminated all the bureaucracy on adopting these other products. So they are a click away. from uh from adoption so that we're having from 10 to 12 times the adoption of the cross-selling that we had before and this is already starting to impact overall numbers uh we're in the migration phase from uh customers of our former products standalone products to customer cloud it's still in the first uh waves of migration and we're seeing that these customers especially the ones that come from pure cpass that goes to the third part of our questions as we migrate customers from pure channel usage from pure cpass uh uh usage to zambia customer cloud they start using software uh in a couple days because they see the benefit of using not just the channel, but all the software they're able to provide for them for marketing, for sales, for customer service and so forth and so on. So that goes into like a decrease of CPaaS customer base. We're having a migration of these customers from being like pure channel customers to software customers. And that kind of address The whole strategy of Zambia coming from a CPaaS and turning into a SaaS company and Zambia Customer Cloud is what making all these happen in practical terms. That's why we're excited for next quarters to have more impactful numbers overall of these both new customers and migrated customers using this new platform.

Very clear. Thank you very much.

Let me pick some questions here from the webcast.

And then say an extension of what Cassio was just said. Can you share a little more details around Zenvia Customer Cloud? How's the rollout going? Anything you can share on a qualitative basis and also if there are any numbers that you can share at this stage? I'll just be upfront here and say that we can share very little in terms of numbers as it's in very early stages. And any number we share now can be polluted by being early stages. But I guess on a qualitative basis, Cassio, can help you understand where we are and how we see the evolution on these early stages of the Zendure Customer Cloud.

Sure. Armin, thanks for the question. We had a pre-launch of Zenerio Customer Cloud in March because we had just two products being combined into this new solution. And we had a very interesting rollout in this initial phase in March that helped us to fine-tune the product. and prepare for the next phases. We launched in October officially Denver Customer Cloud with another of our products and then completing more parts of the customer journey. In practical terms, we had marketing campaigns in the first phase and the sales process for sales reps to engage with customers on the digital channels. We had that in pre-launch in March. And then during, I'll say around July, we launched the GenAI chatbot feature, also in a pre-launch. And now in October, we launched two very important features. One is for ads optimization. Now we entered the ads portion of the journey. and helping companies to optimize their ad spending by understanding which customers convert the best. And we also launched what we call SERV, which is a very important part of Movidask. The company that we acquired in 2022 is now part of Zendure Customer Cloud. That was the part of launch in October. So now we have all these features from ads, to marketing campaigns, to sales processes, to chatbot automation, to customer support with ticket controls and automation, all already available for our Zenview Customer Cloud customers. That's why we're migrating customers from these former products into this new unified solution. And on our roadmap, we expect to have next couple of months also the more data-driven features and AI-driven features that would use all these data that are being used from all these different parts of the journey and the data that comes from the company's own systems that can combine to create more actionable insights that will help customers to nurture their relationship with their end customers. That's when we expect to complete the deployment of Zenvue Customer Cloud. From there, we're going to evolve into agents that are going to help our customers to automate not only the customer interactions, but also different processes such as churn prevention, cross-selling, add optimization and multiple features that we're working on to deploy and will be very unique offering for the market. So that's a bit of a review of what we're working on and we're already launching.

So let me keep going here. And I think Caio can answer this first part and then I'll take the second part. So three Q revenues were impacted by non-recurring and Q4 revenues usually have some seasonality. That said, how should we think of the quarter of a quarter path for a CPAS and what about SAS?

Okay. So regarding CPAS, we can expect revenue Q4 is slightly higher below what we had in Q3. As you said, we have but I'm not incurring volumes regarding SIPA. So even though S has anality in Q4, we expect a slightly below revenue when we compare with Q3. Regarding SAS, we're still in the path of growth. We expect the same or a little bit better growth that we had in Q3. So the path for SAS is the same that we've seen all of the year with growth.

um that's it yeah and and the second part i'll take this one given the volumes we're having in cps would it be fair to assume you are tracking ahead of guidance um no i think that we are tracking within guidance for all the metrics uh we are again as kyle just mentioned there's some volatility uh on the cps business in terms of revenues which you don't expect to to to repeat in in q4 Although there is a seasonality, it's not going to be as strong as skill 3, so we are comfortable at this point to reiterate the 2024 guidance that we have.

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

I have a question here for Cassio. How deep is AI embedded in the products? Are you able to charge more for having AI capabilities?

Sure. Awesome question. So we already have, I would say, about six or seven features, different features that are peer AI features. They go from co-piloting for sales improvement, co-piloting for customer support improvement, complete full automation of customer experiences. We have analysis of past interactions with customers to understand their overall perception of the brand and the relationship. We have uh ai been used for marketing campaigns optimization and that's the ones i could remember and we're working on several other features because it's very very uh useful it's very practical to use uh ai uh and embedded in the product and the the way that we develop business model for civic customer cloud is that we are able to capture that by volumes on customer interactions. And that's how we expect the near future to long-term monetize all of these features, not by charging tokens, because we understand at some point it's going to become commodity. But the results of that, which is how you were able to... create better experiences for customers using our software. And that is powered by AI, but not charged by the same way that these AI platforms, generally speaking, adopt, which is token-based. Because we are not just providing an alarm engine. We're providing a complete AI solution that use data that they use several other features on the product along with AI.

Another one here, given the expenses reduction you've been delivering, do you think at some point it could potentially impact the company's future revenue growth?

Not at all. We come from a series of acquisitions and it's pretty normal that as we find synergies, we're able to optimize our structure. And as we are combining all our products into Zambia Customer Cloud, we're also optimizing the way we sell, the way we serve our customers. And that brings lots of efficiencies that can be that can result in us keeping a similar organizational structure while at the same time we scale revenues because we're moving from a less optimized operation from the combination of acquired companies into a unified way of operating That helps us scale and avoid having to employ more people to do each part of the process as we get the benefits of integrating all the systems and the processes and the way we interact and serve our customers.

Yeah, and I'll just add on what Cassio said. We've been doing this, we've been streamlining our operations since the second half of 22. So it's not something that came out of the blue and we are doing at once. So we've been planning this and we've been adjusting the operations through time. And as Cassio mentioned, as we have simpler products and simpler processes that would naturally lead to discontinued reduction. So it's not, we are very comfortable in the way that we've been doing this in waves. You had the net income positive in the quarter. Can we expect more in the next quarter or next year? Obviously that all we do is seeking to deliver value to shareholders and delivering value to shareholders will go through P&L, right? So generating net income is something that we'll always seek. Specifically in this quarter, it's important to highlight that we had a one-off positive impact in finance income from a market-to-market of derivatives that we have. But even excluding that, we would have had a positive net income of about R$8 million. And that is a reflection of the good results and the positive EBITDA and the healthy results that we delivered. So obviously, we expect that as results improve, that they will translate into their income on the P&L, but also in EBITDA being converted into cash. to help the leveraging balance sheet. So it's on us to continue delivering good results that will translate into both P&L and cash flow. Can you elaborate about guidance for 2025 in terms of the cash flow of EBITDA? Unfortunately, no. At this point, we are still looking into 2024. We still have at least a month, right, Cassio, ahead of us to continue delivering results. So although we are already planning for 2025, we are still much focused on continuing delivering in 2024. and the guidance for 2025, most likely at some point early next year. Which stock price would be the minimum for Zenvia with regards to use the shelf offering? We don't have a specific share price. The offering for us is viewed as an opportunistic move, so it's there. If share price and cash flow are aligned, it will make sense for us to execute on the shelf. And due to, we have some limitations on how we can disclose prices and volumes. But what I can tell is that it's an opportunistic move. And if share price and cash flow are aligned, we'll execute on the shelf.

I think we are done here on the web. I don't know if there are any further questions on the phone.

Yes, that's it.

This concludes. I'm sorry, Shay.

Go ahead, Hugo.

This concludes our Q&A session. I would like to turn the conference back to Mr. Cassio Bobson for his closing remarks.

Thank you very much for all of you guys here. We're very, very excited with the results of this quarter, especially on what we're building for the future. It's an amazing experience having Zambia Cosmic Cloud performing so well. And we see the trends and the numbers and expect them to get even better in the next couple of quarters. So see you guys next time.

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 very nice day.