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spk08: Greetings, and welcome to Calera Incorporated First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the form of presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to introduce your conference host today, Mark Griffin, Investor Relations. Please proceed, sir.
spk02: Thank you. Good afternoon and welcome to Calera's first quarter fiscal 2021 conference call. Calera released unaudited financials for its first quarter ended March 31st, 2021 after the market closed. The press release as well as today's replay can be found on the investor section of the company's website at investors.calera.com. Joining us for today's call for management is the founder and chief executive officer, Dario Collegio, and the company's chief financial officer, Giacomo Dall'Aio. Management is doing this call from different locations today, so please bear with us as we transition between speakers and address your questions. During today's call, management will be making forward-looking statements. Please refer to the company's SEC filings, including the company's annual report on Form 10-K, for a summary of the forward-looking statements and the risks, uncertainties, and other factors that could cause actual results to differ materially from those forward-looking statements. Clara cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise those statements to reflect new circumstances or unanticipated events as they occur, except as required by law. Throughout today's press release and on our call today, we refer to adjusted EBITDA. This metric is not determined in accordance with generally accepted accounting for principles and therefore is subject to varying calculations. A definition, calculation, and reconciliation to the financial statements of adjusted EVA can be found in the tables included in our press release. We believe this non-gap measure of Calera's financial results provides useful information regarding certain financial and business trends and results of our operations. With that, let me turn the call over to Dario. Please go ahead.
spk06: Thank you, Mark, and thank you to everyone joining us on the call today. As you all are all aware the effects of the global pandemic continue to pose challenges worldwide, but with certain geographies experiencing the continued temporarily negative effects of government-mandated lockdowns. While we see positive momentum building in the United States of America as the number of vaccinated citizens rise, Meanwhile, a resurgence in Europe has lowered the modest recovery we have been seeing in Italy, and most unfortunately, India is now experiencing the worst effect of the pandemic as cases rise. Moving on some financial highlights. We reported quarterly revenues in Q1 of $39.7 million. with an increase of 18% from the same period last year, demonstrating continued resilience in the recovery. We continue to experience growth in all of our major geographies with particular strength coming from regions in our rest of war segment that has been less affected from the pandemic. The main drivers in the quarter We had an uptick in our e-commerce customers in India, broad-based positive activity within our U.S.-based enterprise customers, and new customers in the rest of the world. In a seasonally challenging quarter, we were very pleased to see digital payments and transactions improve, which drove messages up 2% on a year-over-year basis. On the voice side, calls continued to increase year over year and were up 55% on that basis. For the quarter, we delivered 7 billion billable messages and connected 1.2 billion voice calls on behalf of our Caleras customers. Now, I would like to touch on some of our key initiatives in the quarter. Our K-Lab initiative continues to gain momentum. And during the quarter, we signed an agreement with Visa covering the Latin America and the Caribbean region. As part of the agreement, K-Lab will be creating communication solutions for Visa partners, solving digital communication issues that range from streamlining KYC to timely reminders of reward benefits and messaging to avoid transaction declines. The Visa Agreement is in addition to the agreements we signed last quarter with MasterCard banking customers in Latin America and the Caribbean. As a reminder, we launched K-Lab as a way to leverage our expertise in solutions development, digital innovation, and go-to-market strategies for the financial sector to build more impactful mobile customer experience solutions for both new and existing clients. We continue to be excited by the pipeline for these new initiatives and believe our bespoke solution for the financial service sector will quickly build sustainable momentum. Another newly announced KLAB agreement is with Trellance, the leading provider of data analytics, business intelligence, and professional services for credit unions. Together, we'll be creating communication solutions for credit unions powered by data from the Trelance M360 platform. Using KLAB services, credit unions will now be able to bridge the gap between their data sources and their member messages. Member and transaction data from Trelance M360 will be used by KLAB to integrate with the CPaaS platform of Calera which will result in a more contextually relevant way to communicate with members through multiple channels, including voice, SMS, application to person, A2P, and more. The most exciting news of the quarter was our announcement of the planned closing of the Engage acquisition, which, pending approval by our stakeholder at the May 27th stakeholder meeting, is set for June 1st. We could not be more excited to work Engage, its customers, and the entire team to the Calera family. Calera and Engage together are uniting two world-class enterprise cloud communication companies to create a top-five global CPaaS platform with a diversified and balanced product portfolio and geographical representation. As a reminder, Engage is a best-of-grade mobile messaging solution that focuses on the mobile engagement market and allows enterprise clients to effectively engage with their customers through all mobile channels for a variety of use cases, such as customer care, service alerts, and multi-factor authentication. Over the past few years, Engage has invested heavily to create two excellent solutions for their customers. The first is Communicate Pro, a cloud-based enterprise-grade messaging platform that connects brands and their customers through all major mobile messaging channels. The second solution, Connect, is engaged enterprise-grade APIs that allow customer clients to seamlessly build on existing messaging programs without the need for extensive development. Engage has a diversified base of over 300 blue-chip customers, some of which are associated with the world's most valuable brands, and Engage's top 10 clients have an average tenure of more than 10 years. For these customers, Engage is processing approximately 20 billion messages over 150 countries. More importantly, Engage's strength in the U.S., as one of four mobile messaging providers with direct connection to all four major U.S. carriers. Engage offering is very complementary to Calera's, and this combination will accelerate and expand Calera's opportunity to serve the CPAS market, which is expected to reach $26 billion in 2025, with a compounded annual growth rate of 35%, and the consolidated application-to-person enterprise messaging market, which is expected to reach $78 billion in 2022. In summary, we believe that Calera is well-positioned to execute on our initiatives with our broad product portfolio, global reach, and an unbelievable worldwide team. Let me now turn the call over to Calera's Chief Financial Officer, Giacomo Ballaglio, who will review our financials in more details. Giacomo, please, go ahead. Thanks, Dario. For the first quarter ended March 31st, 2021, we reported total revenue of $39.7 million, an increase of 18% year over year, and demonstrated the continued momentum of the recovery. The revenue in the quarter was slightly below expectation as the economic recovery was not as robust in Europe as we anticipate because of spiking COVID cases. Additionally, we turned off some extremely low margin messaging routes that lowered revenue but had a positive effect in our gross margins. The main drivers in the quarter were an uptick in our e-commerce customers in India, broad-based positive activity within our U.S.-based enterprise customer, a new customer in the rest of the world. Our revenue base continues to move away from Italy with India, which grew 32% year over year, while U.S. grew 19%, and the rest of the world segment was up 64%. In the quarter, we processed 7 billion billable messages, up 2% from the prior year period, and we connect 1.2 billion billion voice calls in the quarter, up 55% year over year. Gross profit first quarter 2021 increased 34% to 6.3 million from 4.7 million in the year ago period. Gross margin was 16% in the first quarter of 2021, up approximately 200 business points, from the 14% we reported in the first quarter of 2020. The remaining drivers of gross margin expansion were a revised product mix, an increasing trend toward higher margin premium service, invoice costs, and the churning of low margin routes. Operating expenses were $16.3 million in Q1 2021 compared with 14.3 million in Q1 2020, mainly driven by the increase in human capital. Loss from operation was 10 million for the first quarter of 2021 and included 5.5 million of stock-based compensation, 2.5 million of transaction one-off costs. This compared with the loss from operation of 9.6 million in the first quarter of 2020. Net loss was $10.4 million, or $0.34 per share for the first quarter of 2021, compared to the net loss of $8.8 million, or $0.44 per share for the first quarter of 2020. Adjusted bid loss was $1.1 million in the first quarter of 2021, compared to a loss of $300,000, in the first quarter of 2020. The decline in adjusted BDA is attributed to the increased headcount, predominantly in the engineering talent that has been hired to execute on our emerging growth opportunity to develop and deliver new products and services. Cash used in operating activities was $8.2 million in Q1 2021, mainly due to working capital changes and transaction costs compared with a cash use of 2.9 million in the same period of the prior year.
spk05: We have a very strong balance sheet with cash and cash equivalent and short-term investment of 39.8 million as of March 31st, 2021.
spk06: This cash position is after paying down the company's liabilities by $18.8 million during the first quarter, including eliminating any remaining obligations under the forward share purchase agreement, and compared with $37.8 million in the cash-to-cash equivalent and short-term investment as of December 31, 2020. Before I discuss our financial outlook, I would like to highlight the strategic capital raise we are executing as part of the transaction with Engage. Calera, we found the consideration to engage shareholders and related transaction costs with a combination of 200 million in senior unsecured convertible notes due in 2026 and the issuance of 10 million shares of common stock issuance at a price of $120 million. Both of the convertible notes and the common stock issuance will close immediately prior to the closing of M-Gauge acquisition. Now, I'd like to expand our thought regarding our financial outlook.
spk05: Calera Outlook does not take into consideration the M-Gauge acquisition.
spk06: We are retiring a annual revenue guidance in the range of 183 to 185 million, up approximately 25% at the midpoint of the range. For Q2, total revenue is expected to be in the range of 40 to 41 million, up approximately 30% at the midpoint of the range. Thank you for taking the time to join us on our call today.
spk05: And with that, we would be happy to take your question now.
spk08: Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to ask a question at this time. One moment while we pull for our first question. Our first question comes from Mike Lattimore with Northland Capital Markets. Please proceed.
spk01: Yeah, great. Thanks a lot. Hi, guys. Yeah, just with regard to the guidance for the year, you know, it implies some solid sequential growth in the second half of the year. I guess, can you just go through a few of your assumptions there? Do you assume there's kind of more of a reopening in the third quarter again in India, Italy, and maybe what are you thinking about in terms of the campaign registry?
spk06: I'll let Giacomo to answer this question. Related to revenue, I just want to underline that last year, we reported in the second half 56% of the total revenue of the year. And thanks also to the reopening, we think we are in the track with the guidance.
spk03: Okay, got it.
spk01: And then it sounds like M-GAGE is about to close here June 1st, I believe you said. Any color on how mGAGE is performing? I know they have a bigger U.S. presence and they're in some other regions. So any color you can give us on whether mGAGE is tracking to those original expectations?
spk06: Well, Mike, I would like to talk about mGAGE after closing and not before closing. So I will give more information and color when we'll do the financial reporting for the second quarter at this point in time. In general, what I would like to stress is that Engage is like the perfect fit for Calera because we ended up with a post-closing and post-combination on a performance basis with about one-third of the revenues coming from the United States, which will definitely improve the financial performance profile of Calera. And also we'll have about another third coming from Europe, where Engage has very significant operations in the UK. And the rest, the last third, will be 50-50 split between Asia-Pacific and Latin America, Middle East, and Africa. So what I can tell you about this combination is that Engage seems to be very, very promising. And all together, Calera and Gage is becoming a very relevant player in this space. And I'm very, very glad that we are like three weeks away from the closing. Thank you.
spk01: Okay. Got it. Got it. And then just last on the campaign registry, I think you had said that you wanted to see how the second quarter played out before you gave a little more color there. Is that still the plan on the campaign register?
spk06: Yes, that's exactly the plan because I said before, as I said before, we need to have some data points before we can guess about the financial performances of the unit. The unit is doing well. It's doing great. The team is working very closely with the content service provider and with the operators, and the whole ecosystem seems to be let me say, supporting the approach of the campaign registry and the operator starting to mandate the registration of the campaign and the campaign service provider are still extensively testing, but we start adding also some revenues in coming. So this is encouraging me in restating the affirmation that after the second quarter we'll have a better understanding of the volume, the revenues, and we can make a guess for the second half. Okay.
spk03: Thanks very much. Thank you, Mike.
spk08: Our next question comes from George Sutton with Craig Hellam. Please proceed.
spk07: Thank you. I wondered if you could talk about the traction you're seeing so far with voice in the U.S., And what were some of the drivers behind the growth in voice volumes in the quarter?
spk06: Well, voice in the U.S. is at the very, very beginning, so it's not yet relevant in terms of volume. The increase in volumes, I would say, is mainly in India at the moment. And we have also launched the services in other geographies, but we are at the very beginning. So I would say that basically e-commerce is the one that is taking the lead of the increase in volume. And also some COVID-related services, like the one that we announced in India, which was called TEP1. Let me say SIPA-supported triage system for COVID suspects and this is going very well. But e-commerce is definitely the service which is leading the increasing volume. Gotcha.
spk07: So I wondered if you could quantify the impact from COVID and the impact on the low margin routes you exited in the quarter.
spk06: The impact on COVID is scattered in a way, because it depends not on the pandemic itself, but on the reactions of the administrations and governments calling for, let me say, very strict lockdowns. So wherever there is a very strict lockdown, in general, the society slows down and the economy behind the society slows down. So the impact is scattered, and it's depending on where and when the governments are doing the shutdowns. What I can tell you is that I start seeing significant improvement definitely in the United States, but also in Europe, because there is a very significant ramp up in the supply of the vaccines in the world. In May, we are about to have Roughly a couple of billion of those is delivered Getting to the to the to the route in general Calera as a policy were is Being a quality provider is the policy that is not willing to work in routes and markets where the price competition is becomes unsustainable, especially because of the gray route policy that some suppliers are applying on some routes and some geographies. And so for this reason, we start becoming more and more picky in deciding where we want to work and with whom we want to work. And this is already happening with a number of large accounts, especially the big digital giants. where we start seeing gross managing significantly improving per customer for this policy.
spk07: One other question, if I could. You referenced an industry study that suggested that this market would grow 35% compounded over the next handful of years. I wondered if you could just align that with what you anticipate your own organic growth opportunities should look like over that period.
spk06: Yeah, well, the market overall could be defined as the union of the strictly called the CPAS market that, for instance, analysts like Juniper Reserves said that it's going between 7.1 billion in 2020 up to roughly 25 billion in 2025. But this is not the whole market because this is excluding the application to personal messaging, which is much larger. and it's going from 60 plus to 78 billion in 2024, if I remember well. So let me say the two segments have different growth rates. The first one being emerging, it's growing faster, and it's the one that is considered to be growing at about 35%. The other one is growing a little bit less. If you blend the two markets together, I would say that the – and you duplicate because there are some duplications in the two segments. You can say that the market is growing roughly between 25% and 30% on a daily basis.
spk07: Gotcha. Great. Thank you very much.
spk08: Thank you. Bye, George. Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from Alan Clee with Maxim Group. Please proceed.
spk04: Good afternoon. For the rest of world segment, what were the factors behind the year-over-year increase?
spk06: Mainly it's new customers because we are onboarding new customers in new geographies. So the increase is pretty much related to new customers or new routes for existing customers in new geographies. Especially when you work with large digital giants that are global players, you start having on a quarterly basis a selection of new routes and new geographies where they need the service.
spk03: OK, great. And then for India, India did quite well.
spk04: I think revenues were up like 32%. And you mentioned e-commerce and voice. But your guidance for the year, what are you, I mean, what we're seeing from the outside seems to be that things are likely to get worse there rather than stable in at least next quarter or so. What are you assuming in your guidance? Are you assuming that India is going to be under some pressure?
spk03: I would ask Giacomo to address this question.
spk06: Yeah. We are conservative in the guidance for Q2 because the situation in India starting from April and in May is going a little worse than expected on the pandemic. So we will see a growth, of course, because our guidance is 30% above Q2 last year. but we are conservative on India.
spk04: Great. And the M-Gage transaction seems like it's going to be very transformative to your company. And so I just want to confirm my understanding that there's a shareholder vote, but the likelihood that this goes through seems to me quite high. Could you explain kind of the dynamics of that?
spk06: Well, the dynamics is in the filing, first thing. If you look at the SVA, it's all written in there. But it's very simple. There would be a special meeting on May the 27th where the shareholders would be called to vote. And in the merger agreement already, the existing shareholders on May on the buy side, on the Calera side, have agreed to vote towards an approval. So we already know that we have X percent of the existing shareholders of Calera voting in favor. And again, this is in the filing, so I'm not saying anything which is not in the public domain. And so we expect this special meeting to go smoothly. It should be very easy. Because basically we are issuing 10 million new shares. So this issuing is exceeding the threshold of 20%. So we have to go through the special meeting under the current regulations. And the closing is expected to be after the approval of the special meeting on June 1st. Exactly.
spk03: Okay, great.
spk04: And my, I mean, M-Gage is roughly around the same size in sales as you, not exactly, but significantly more profitable even before any potential synergies. So it seems like this has the potential to be a nicely, a very accretive type of deal.
spk06: Indeed it is. Financially, it's definitely very accretive. Strategically, Also, it's area creating. Zero overlap in customers, almost zero overlap in geographies, but India, where we basically doubled the revenues, which is good because we've become more relevant, and this would potentially lead to significant savings in the sourcing of the termination with the mobile network operators and a lot of cross-selling opportunities because Calera is an omni-channel platform. Engage is pretty much focusing on messaging on the two core technologies, which is the original Tanda SMS and this evolution into RCS. So we are looking very much forward towards working together with the team at Engage to exploit the opportunities. But yes, this is a very creative combination. and also they enjoy a better profitability because of the geography that they serve because they have the U.S., and the U.S. is basically the highest gross margin messaging market in the world.
spk03: Fantastic.
spk04: Congratulations.
spk03: Thank you.
spk06: Thank you, Alan. Thank you for your question and your continued support.
spk08: Thank you. At this time, I would like to turn the call back over to management for closing comments.
spk06: Thank you very much. So thank you, ladies and gentlemen, for staying with us during this call and looking very much forward to talking to you again next time. Thank you very much.
spk08: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation and have a great day.
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