This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Greetings.
spk02: Welcome to the Calera Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mark Griffin. Thank you. You may begin.
spk00: Thank you. Good morning and welcome to Calera's second quarter fiscal 2021 conference call. Calera released unaudited results for second quarter ended June 30th, 2021, earlier this morning. The press release, as well as a replay of today's call, can be found on the investors section of the company's website at investors.calera.com. Joining us for today's call from management is the founder and chief executive officer, Dario Calegiro, and the company's chief financial officer, Giacomo Di Aglio. 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. The letter cautions investors not to plays undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise the statements to reflect new circumstances or unanticipated events if they occur, except as required by law. Throughout today's press release and on the call today, we'll refer to adjusted gross profit margin, adjusted EBITDA, and adjusted earnings per share. These metrics are not determined in accordance with generally accepted accounting principles and therefore are susceptible to varying calculations. The definition, calculation, and reconciliation to the financial statements of these non-GAAP measures can be found in the tables included in our press release. We believe these non-GAAP measures of Calera's financial results provide useful information regarding certain financial and business trends and results of operations. With that, I'd like to turn the call over to Zario. Please go ahead.
spk08: Thank you, Mark, and thank you to everyone joining us on the call today. Calera reported another strong quarter. with Q2 exceeding our revenue expectations along significant improvement in our gross margins. Our financial improvements validate both our strategy and execution as we continue on our journey to becoming a global CPaaS platform. The second quarter was transformational for Calera as we completed the landmark acquisition of Engage as well, immediately following the closing of the second quarter, acquiring Bandir, and through these acquisitions, we have accelerated our growth, expanded our geographic reach, and broadened our product portfolio. For the second quarter, our revenues were $54 million and increased by 73% year-over-year. More impressive, the revenue was $43.8 million, excluding engage, an organic increase of 40% year-over-year. demonstrating the value proposition of our offering and the modest economy recovering worldwide. The global pandemic continues to pose challenges worldwide with positive action from the vaccination process, but also increasing number of hotspots as the Delta variant of COVID-19 ravages certain communities. The team has continued to execute very well through this and other challenging periods. The main drivers in the quarter were the COVID recovery with the reopening of the economy in Italy, an uptick in our e-commerce customers in India, broad-based positive activity within our U.S.-based enterprise customer, and new customers in the rest of the world. We were pleased to see digital payments and transaction improve, which throw messages up 60% on a year-over-year basis. On the voice side, calls continued to increase year over year, and we're up 195% on that basis. For the quarter, we delivered 8.5 billion billable messages and connected 1.4 billion voice calls on behalf of Calerasca. Now, I would like to touch on some of our key initiatives in the quarter. In the second quarter of 2020, we officially launched the campaign registry, and we are very pleased with the progress to date. As a quick reminder, the campaign registry is a subsidiary of Calera and provides application-to-person, ATP, sanctioned 10-digit long-code messaging campaign registration services. The campaign registry collects the who, or the brand, and campaign service provider, and the what, or the use cases, industry segment, and additional carrier-mandated information services. for business messaging programs in which a brand via its campaign service provider communicates with end users. The registry is similar to a yellow pages for business messaging services, which enables identification to ecosystem participants in doing sending messages and what they intend to send in order to support improved service quality and reduction of spam and unwanted messaging to consumers. Out of the second quarter, campaign registration has signed all Tier 1 carriers in the U.S. and other carriers, representing an estimated plus 98% of the U.S. carrier market. Moreover, hundreds of campaign service providers, representing an estimated plus 95% of existing 10-digit long code traffic volumes, have signed up and are participating in the registration. After spending time to develop the registry and sign up carriers, we are pleased to announce that campaign registry has been executing services, generating revenue, and there's significant momentum. We are projecting an increase from our initial revenue estimate for 2021. We are continuing to invest in the campaign registry and identify new use cases and are working with carriers to implement new APIs. Campaign service providers are already testing these new APIs and integrating them into their programs. These additional services are in beta test now and should be generally available in the fourth quarter. We are very pleased with how the campaign registry is developing and look forward to sharing more progress in the future. Most exciting news of the quarter was the acquisition of We could not be more excited to welcome Engage and the entire team to the Calera family. Calera and Engage together are uniting two world-class enterprise communication companies to create the top five global CPaaS platform with a diversified and balanced product portfolio and a geographical representation. As we continually look to expand our product portfolio and build on our acquisition of Engage, we agreed to acquire Bandir and their highly complementary audio video APIs and SDKs. Bandir offers cloud-based audio video communication services to financial institutions, retail companies, utilities, industries, insurance, human resources, and digital healthcare organizations. We look forward to integrating this technology into our platform and expanding our service offering to our customers. finally calera was recognized as one of the top chatbot solution providers by cio applications and will be featured in the cios magazine for the chatbot 2021 edition we are very proud to have our solution recognized by cio applications and enterprise technology magazine recognized as a go-to resource for senior level technology buyers and decision makers to learn about products, services, technologies, and technology trends. Chatbots are becoming critical in delivering 24 by 7 support to customers, thereby helping various industries streamline and optimize the customer experience they offer at every stage in the process. The global chatbot market is expected to reach $10.5 billion by 2026, with a compound annual growth rate of 23.5% in the 2020-2026 period. In summary, we believe that Calera is well-positioned to execute on our initiatives with our broad product portfolio, global reach, and unbelievable worldwide team. Let me now turn the call over to Calera's Chief Financial Officer, Giacomo Dallaglio, who will review our financial in more details. Giacomo, please go ahead.
spk07: Thanks, Dario. For the second quarter ended June 30, 2021, we reported total revenue of $54 million, an increase of 73% year-over-year. Engage contributed $10.2 million. Revenue excluding Engage, was $43.8 million, an organic increase of 40% year-over-year, demonstrating the value proposition on our offering and the modest economic recovery worldwide. Organic revenue in the quarter was ahead of expectation due to the significant increase in volume compared to the same period of prior year. The main drivers in the quarter were the COVID recovery with the reopening of the economy in Italy, an uptick in our e-commerce customers in India, broad-based positive activity with our US-based enterprise customers, and new customers in the rest of the world. We continue to geographically diversify our revenue base with Italy coming in at 35%, India at 25%, and U.S. at 20%, and the rest of the world at 11%. The acquisition of Engage strained our position in U.S. and South America, which now represent 5% of revenues. In the quarter, we processed 8.5 billion billable messages, up 62% from the prior year period, and we connected 1.4 billion voice calls in the quarter, up 195% year-over-year. Gross profit, second quarter of 2021 increased 140% to $10.5 million from $4.4 million in the year-end growth period. Gross margin was 19% in the second quarter of 2021, up more than 5% from 14% we reported in the second quarter of 2020. Adjusted gross profit, second quarter of 2021 increased 147%, to 11.1 million from 4.5 million in the year-ago period. Adjusted gross margin was 21% in the second quarter of 2021, up more than 6% from the 14% we reported in the second quarter of 2020. The main drivers of the adjusted gross margin increase were the organic expansion of gross profitability for Calera legacy business representing 81% of the year-over-year increase and the revised product mix due to the acquisition of Engage. Operating expenses were 21.3 million in Q2 2021 compared with 11.9 million in Q2 2020, mainly driven by the recent acquisition of Engage and investment in sales and marketing and research and development talent. Loss from operation was $10.8 million for the second quarter of 2021, including $6 million of stock-based compensation and $4.5 million of transaction one-off costs. This compared with the loss from operation of $7.5 million in the second quarter of 2020. Net loss was $4.5 million, or $0.13 per share for the second quarter of 2021, compared to the net loss of $8.1 million or $0.39 per share for the second quarter of 2020. Adjustment net income was $0.5 million or $0.01 per share basic or diluted for the second quarter of 2021, compared to the adjusted net loss of $1.4 million or $0.07 per share for the second quarter of 2020. Adjusted BDA was 2.2 million in the second quarter of 2021 compared to a loss of 300,000 in the second quarter of 2020. The improvement in the adjusted BDA is attributed to organic growth in Calera legacy business and to the effect to the business combination with Engage. Calera continues to strongly invest in human capital and, in particular, in R&D talent, enhancing the headcount growth year-over-year to strain the omnichannel platform and continuous investment in the global sales operation. Cash used in operating activity was $4.9 million in Q2 2021, mainly due to the working capital changes and transaction costs, which were cash settled for more than 15 million in the quarter, compared with cash use of 1.6 million in the same period of the prior year. We have a very strong balance sheet with cash equivalent and short-term investment of 124.7 million as of June 30, 2021. This cash position includes net proceeds from the PIPE and issues of convertible notes after payment to acquire and engage. Now I'd like to expand our tool regarding our financial outlook. We are returning annual revenue guidance in the range of $258 to $262 million. For Q3, total revenue is expected to be in the range of $79.5 to $80.5 million. Thank you for taking the time to join us on our call today. And with that, we will be happy to take your question now.
spk01: Thank you.
spk02: At this time, we'll be conducting a question and answer session. If you'd 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'd 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. Our first question comes from Tim Horan with Oppenheimer and Company. Please proceed with your question.
spk03: Thanks, guys, and good quarter. And I have a few questions, but feel free to cut me off. You know, first on the campaign registry, you know, when will carriers start blocking or really implementing campaign registry where it's the only way to do you know, blast text messages, you know, to, yeah, for people to do blast text messages? When will that kind of kick in in full force?
spk08: Hello, Tim. This is Dario. Well, this is a process which is ongoing now. Operators are mandating the campaign service provider to register the campaign of the brand, and they start sanctioning if they don't. For this reason, all the major campaign service providers in the U.S., have subscribed with the campaign service provider, and we are now starting registering campaigns massively. I believe that any operator has his own policy in terms of sanctioning, but in general, as a general rule, the idea is that the price of termination will vary significantly if you do not register the campaign. So there's no convenience for the brand to do unregistered campaigns.
spk03: Got it. So by year-end, do you think it will be pretty well implemented? I mean, it depends on each carrier, but are most carriers – or will it happen before that? I mean, could it happen at the end of this quarter where the carriers really implement this product?
spk08: Well, we are in a ramp-up period, which is definitely ongoing on the Q3E. And I assume it can be completed by the end of the year. So we'll be full throttle with the registration process, I believe, by the end of the year.
spk03: Great. And then secondly, could you maybe quantify somewhat what you think the impact to Engage was from COVID, you know, or to the company? Like, you know, what... what could revenues have been if it wasn't for COVID? I know it's a hard, hard question, but, you know, I guess, you know, at some point as we exit COVID, you know, do you think M-Gage can resume growth?
spk08: Well, to answer to this question, I must segment by geography because the impact of COVID is bearing significantly on a geography by geography. Definitely in second quarter, there has been an impact in some geographies, including Brazil. Latin America as a whole, and Brazil in particular, whilst the US have been absolutely clean. Most of the business of Engage is coming from the United States, but also from Brazil and also from India. India, again, in second quarter with the Delta variant has been hit in terms of volume. Nevertheless, the volume As a whole, on a consolidated basis, went up significantly with some growth of the revenues organic without engage of 40% year over year, Q2 on Q2, and 74%, 73%, including one month of engagement. So let me say we keep on monitoring on a weekly basis the performances of the platform and the volume, but you can't say that there is an even situation in the world. It's very different on our geographical segmentation.
spk03: Well, I guess in another way, has M-Gage started to resume growth again yet here in the third quarter, or is COVID still holding them back?
spk08: No, no. Engage is recovering well, and the volumes are going up, and we're only consolidating the second quarter, the month of June. So it's only contributing for 10.2 million, if I remember well, which is definitely improving compared to the previous month.
spk03: Great. And then lastly, can you just give us a sense of – the synergies, what you kind of expect now from the two companies, both from, I guess, more so expense synergies, and then roughly kind of some rough ideas where EBITDA margins can kind of get to by the end of the year. I know you have a lot of levers to pull on that. Thanks.
spk08: Well, first thing, like we say, that we do not provide any guidance, at least till now we haven't provided any guidance for the ABBA. So I'm pretty tight in giving any forward-looking guidance about ABBA. I can tell you that in second quarter, ABBA has been way better than what we had budgeted. So it's improving. This is the result of the continuous process in expanding the gross margin and being more picky in selecting the route and the geographies where we want to serve our customers. Basically, we are working towards an expansion of the gross margin profile, which has definitely, in a platform company, a slight impact on the bottom line. What was the other question, Tim?
spk03: So I was just trying to get a sense of the synergies, maybe, you know, particularly the expenses. Ah, the synergies, yes.
spk08: Yes, the synergies. Well, the synergies with Engage are more on the top line rather than in cost reduction. What is happening now is that most of the very, very large accounts that we serve on both the two companies, on Calera and Engage, are taking advantage of the larger footprint of the group now. uh activating new traffic towards new geographies there are many cpas which are very global like we are in the world and this is unlocking very significant opportunities with the top 10 accounts which are now working together with our business developing teams to expand revenues in new trajectories that both ways are originated by Calaira and by M-Gage.
spk03: And just lastly, I know M-Gage had lower cost determination here in the United States and you had lower in some other countries on the expense side. So are you able to start implementing expense improvements to improve the gross margin here?
spk08: Yes, indeed. We are working on this. This is a process. It's not something that you... turnaround overnight because it requires to sit down with the carriers in any geography to negotiate the volume. But definitely the addition of the volume of Engage to the volume of Calera is providing very, very significant efficiency in the sourcing of termination to all multiple geographies. I give you an example. In India, we were running roughly 40 million, $50 million in revenues. We are now adding a significant amount of volume coming from Engage, and obviously we are cherry-picking the best, the least possible termination cost. Thank you. Basically, we have integrated, day one, the sourcing. So sourcing is global. It's no longer by company. It's Calera Group, which is managing the sourcing and the operation globally.
spk03: Congratulations. Thanks. Thank you, Tim.
spk01: Thank you.
spk02: Our next question comes from Mike Lattimore with Northland Capital Markets. Please proceed with your question.
spk04: Great. Yeah, good morning and congratulations on the quarter. I guess, Dario, you know, you've had M-Gage in the fold now for a couple months. Can you talk a little bit about what you're hearing from their customers about the acquisition? You know, do they like the opportunities they see here? You know, any kind of cross-sell opportunities or expansion with Engage customers you're seeing? Just a little more color on that would be great.
spk08: Hi, Mike. Good to talk to you. Well, first thing, let me say, I had personal one-to-one call with all the top accounts of Engage, and all of them were very, very positive about the integration of Engage and Calera because they see the benefit of having a larger supplier, partner, which is also a listed company. And when you talk to the Fortune 500 companies, they prefer, they tend to prefer to work together with public companies rather than private companies, like Engage used to be before getting into the Calera Group. Also, As an outcome of all these one-to-one calls that I had, the business development team and the go-to-market team are working together with the major engaged accounts to expand the business towards the new geographies that Calera is providing, and it is on messaging, but it's also very much focusing on the new channels and new technologies that we provide that Engage was not able to provide. Engage was basically a messaging provider only doing some RCIS, but the largest part of the revenues and the traffic was SMS. Now we are working together on voice. We are working together on video. Also thanks to the acquisition that we have completed with Bandir, which was already working over the last year together as a partner with Calera. So we see multiple opportunities to expand the omni-channel play with the engaged customers. And this is the focus at the moment.
spk04: Great. And then, you know, you talked a little bit about traffic dynamics in Italy, India, Brazil in the second quarter. Can you give any color on how they're playing out so far in the third quarter? Have there been any kind of changes in those regions kind of in the third quarter here in terms of traffic volumes?
spk08: Well, the trend is positive. The trend that we already observed in multiple geographies were recoveries from the outbreak of the pandemic, the Delta variant in particular, began in the second quarter and is continuing in the third quarter. This is pretty much depending on the pace of the vaccination. Where you have countries like Italy, for instance, where the vaccination rate is possibly the third in the world in terms of results, thanks to the Prime Minister Mario Draghi and very strong focus on accelerating the vaccination program. Then the volume and the traffic and in general the functioning of the society and the economy is breaking off again. I believe that Italy's now GDP is going over 5%, which is absolutely unexpected only like four or five months ago.
spk04: Okay, great. And just last one on the campaign registry, you said you're seeing significant momentum there. And I think you made a comment around revenue, but I wasn't sure. Are you giving any color on kind of revenue from the campaign registry?
spk08: Well, in the second quarter, we didn't recognize much of the revenues because basically we entered in significant contracts roughly in the second half of June. So we start having a regular recognition in the third quarter. I would say that, in general, we double the guidance on the campaign registry in the second half. Okay. Okay, great. Most importantly, Mike, is the gross margin profile of the campaign registry, which is over 80%. Correct.
spk04: I guess on that topic, any general guidance for gross margin in the second half of the year?
spk08: Not really. We haven't given any guidance about gross margin. Giacomo, again, correct me if I'm wrong.
spk07: Yeah. We can say that we expect to improve our gross margin in the second half for... because the seasonality of the Calera legacy business and the second half is much better than the first, and the impact of Engage when in Q3 and Q4 will be fully consolidated.
spk08: Okay. Very good. Thank you. Thank you, Mike.
spk02: Our next question comes from George Sutton with Craig Hallam. Please proceed with your question.
spk05: Thank you. Guys, I wondered if you could provide a bigger picture expectation for campaign registry in the U.S. In other words, how big could this be once it's definitionally more mature?
spk08: This is a very good question. Hi, George. How are you doing? Well, the campaign registry is definitely very promising because of the very wide adoption of the systems. This is a system initiative, so it's absolutely pre-competitive. But I would say that over 95% of the campaign service provider and over 98% of the mobile carriers in the U.S. have endorsed and adopted the campaign registry. How much it could be in the longer term is still to be, let me say, analyzed because it's very early. and it's very difficult, but I think that it's going to be like several million, several.
spk05: Gotcha. Okay, thank you. And as we look at your Bandure acquisition, I understand it's a small acquisition, but it reminds me a lot of the TalkBox acquisition by Vonage a handful of years ago, which really, I think, became a defining strength for that brand, given their focus on high-value APIs. Is there any sense that BandGear could represent a similar kind of opportunity for you?
spk08: Absolutely, yes. BandGear is a very, very nice suite of programmable APIs and SDKs to embed video using WebRTC technology into the application of the customers. And it's kind of a flagship channel for Calera. It's not a market share acquisition. It's not a revenue acquisition. It's a product and technology acquisition, which was very much fitting into our microservice overall architecture. So basically, it's already embedded and integrated into the platform. And we definitely will keep on investing on it to expand the capabilities of Bandir across the board in the world. Because Bandia originally was a European operation with customers only in Europe, but now we are already working together with the engaged team in the U.S. and we are working with the team in India to expand the video capabilities, which is, let me say, kind of a flavor of the month because of the pandemic. Everybody wants to go video.
spk05: Gotcha. Okay. And lastly for me, When we look at mGage, you took it over after a little bit more of a delay than you anticipated. And I think when you took it over, it had started to see some slowdown. And I just want to be clear where you feel it is today under your relatively short leadership.
spk08: Well, let me say, as I told you before, and as I told the market before, the acquisition of Engage went through a process, a compliance process with the customer re-approvals between February and June. So basically the company suffered a little bit the lack of visibility and management because we couldn't manage and the seller was not really on top of it during those months. As soon as we integrated Engage in the month of June, we brought together the management team of both two companies in one single venue. We worked together on the integration program, and this is also motivating a lot of people. And also the customers that were a little bit uneasy with the uncertainty of the acquisition have been absolutely secured. So, let me say, the outlook for the business of engaging the second us is absolutely in line with our expectations. So, I'm positive.
spk05: Wonderful. Great job in a tough environment, guys. Thank you very much, Josh.
spk01: Thank you.
spk02: Our final question comes from Alan Clee with Maxim Group. Please proceed with your question.
spk06: Yes, good morning. Could you provide a little more information on how your markets are doing in India and Brazil, and how you think about the timing to get back to kind of more pre-pandemic levels. Thank you.
spk08: Hi, Alan. It's a pleasure talking to you. Well, if you want to know exactly how are we performing in terms of volume in those geographies, I would hand it over the answer to Giacomo as access to the data. Again, as a general rule, as a thumb rule, I would say that what is making the difference is the speed and the pace of the vaccination program. Where the vaccination program are deployed, and are reaching 40, 50% of the population, then the number of hospitalization and the number of deaths is getting down significantly and the economy starts spinning again. So at the end of the day, the country that is lagging a little bit behind now, I think it's Brazil, but more for political reasons rather than for technical reasons. India has made a significant improvement in the process because they are British at the end of the day, so they're process-oriented. I don't have the last figure, but I think they are going over 20-25% now in their accounting. Giacomo, do you want to add anything to this?
spk07: Yes, India is developing well end of June and starting Q3. We see also starting a recovery also in Brazil. So I believe in the second half of the year, we will have a better number from these two countries.
spk06: Okay, thank you so much.
spk08: Thank you, Ali.
spk01: Thank you.
spk02: Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Dario Calaghetto for closing remarks.
spk08: Thank you, operator, and thank you, all of you, ladies and gentlemen, for joining our call today and looking very much forward to meeting you in person as soon as possible because it's important that we get together and we start working together. talking to you soon and stay with us. Bye.
spk02: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Disclaimer