Zenvia Inc. (NASDAQ:ZENV) Q3 2023 Earnings Call Transcript

Zenvia Inc. (NASDAQ:ZENV) Q3 2023 Earnings Call Transcript November 17, 2023

Operator: Good morning and thank you for standing by. Welcome to Zenvia’s Q3 2023 Earnings Conference Call. Today’s speakers are Mr. Cassio Bobsin, Zenvia’s Founder and CEO; and Mr. Shay Chor, 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. [Operator Instructions] 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 third quarter ’23 earnings call. Thank you all for being with us today. Our results for the third quarter showed the consistency of Zenvia’s strategy as we continue to balance growth and profitability. During this quarter, we were able to accelerate revenue growth, especially in the CPaaS business while maintaining healthy profitability levels. This set of recent results attest to our ability to quickly adapt to various market scenarios while continuing to invest in new technologies, such as generative AI to strengthen Zenvia platform and exceed expectations of our customers. We completed the integration of Movidesk in the second quarter. And recently began the integration of SenseData’s team and processes, which we expect to complete throughout 2024.

Our strategic acquisitions are allowing us not only to expand our portfolio and market presence but also to bring more value to our customers who are starting to benefit from our end-to-end solutions being deeply integrated and bundled. That led us to our One Zenvia vision, which we briefly shared last quarter. That is to combine all of our solutions and technologies into a unified customer experience platform, enabling all of our customers to provide fluid, personal and engaging experience for its end customers. We’ll benefit from our regional leadership on the CPaaS market and its new technological advances with the power of our CX solutions coming both from R&D and M&A initiatives into a unified offering that is expected to be rolled out throughout 2024.

As I mentioned, the CPaaS market continues to advance as demonstrated by our partnership with Google for the launch of Google Messages RCS or Rich Communication Service. We’re incredibly excited by the potential of RCS as a natural evolution of SMS, bringing rich interactive content that boosts marketing campaign results as comparing to traditional SMS. By the end of 2023, Google expects to reach 1 billion RCS users, making it an opportunity that we must capitalize on. We are highly motivated by the ongoing evolution of our platform and its potential, as we look forward to sharing more information with you in the coming months. Now I’ll hand it over to Shay to cover our performance in the third quarter.

Shay Chor: Thank you, Cassio. Hello, everyone, and thanks for being with us today. Let’s start on Slide 5. I’ll start by saying that the third quarter results attest to the consistency of our strategy to balance revenue growth and profitability despite the complex macroeconomic climate in Brazil. During this quarter, we delivered double-digit top line growth in both SaaS and CPaaS while maintaining healthy margins. Specifically in CPaaS, we saw an opportunity to gain market share with certain large enterprise customers. We believe this move is instrumental to set the foundation that will allow us to cross-sell our SaaS products in the near future, evolving from bundled packages to one single unified offering. This is what we’re calling One Zenvia.

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Q&A Session

Now looking into the numbers. Total revenue increased 21% year-over-year to BRL219 million from a fairly stable client base of 13,600 clients. We registered growth in our SaaS business across all customer profiles, while the growth in our CPaaS business was mainly driven by the expanded SMS volumes with large enterprise customers, as I just explained. Gross profit reached BRL83.9 million, down 3.1% year-over-year with gross margin decreasing 9.6 percentage points to 38.4% due to lower margins in both segments. In the SaaS segment, the lower profitability is a result of the still complex macroeconomic environment, which is mainly affecting our consulting businesses. While our large enterprise customer remained cautious on their investment decision during this quarter, we have already seen early signs of improvement in Q3, but the higher impact will be seen in Q4 2023.

In the CPaaS business, as I just mentioned, we saw an opportunity to accelerate revenues and gain market share with strategic large enterprise customers, while keeping profitability at healthy levels. To attest our strategy to balance top line growth and profitability is paying off, we delivered an EBITDA of BRL16.5 million in the quarter, up from BRL9.9 million in Q3 of ’22, marking the fifth quarter in a row of positive EBITDA. Let’s now take a look at our key financials for the first 9 months of 2023. Looking at the first 9 months of 2023 makes it even easier to understand our decision to accelerate revenue growth in the quarter, while maintaining profitability at healthy levels. Revenue growth in the quarter led to a catch-up in the first 9 months of the year when compared to the same period of 2022.

And at the same time, we saw strong margins across the business lines that led to a gross profit growth of 13% year-over-year and gross margin growth of 4.5 percentage points to 44.1%. Moreover, normalized EBITDA in the first 9 months of ’23 reached almost BRL56 million compared to zero in the same period of last year. On a reported basis, our EBITDA was BRL55 million, an improvement of BRL80 million when compared to the negative BRL24.9 million reported in the first 9 months of ’22. We’ll talk about EBITDA in more detail soon. Our stronger EBITDA and better working capital management led to solid operating cash flow of almost BRL124 million in the 9 months period. Now let’s compare the third quarter of ’23 to the second quarter of the year, which shows our continued progress in growing revenues.

Here on this slide, we can see that sequentially we grew consolidated revenues by 13.3% with double-digit increase in both segments. This was driven by the recovery in profitable SMS volumes from some CPaaS large enterprise clients, but also due to the growth of our SaaS business. It is all important to remind you that our CPaaS is a mature business. And our strategy is to have the cash generation from the CPaaS business funding the expansion of our SaaS business. Despite that, we may come across with opportunities to gain market share at healthy profitable levels, which was the case in the third quarter. While this may create some volatility in the contribution of CPaaS to the revenue line, it does not affect the trend of having SaaS increasing as a percentage of gross profit, as you can see in the next slide.

As you can see here, while the CPaaS contribution to the top line was higher in the third quarter when compared to 9 months results, the trend on gross profit is the other way around. While we continue to be the undisputed leader in CPaaS in the region, it is important to remind you that CPaaS is a volume-based business, and therefore, volatile in nature, reason why we decided to pivot the business to add value to the channels in first place. In terms of size, our CPaaS business ended September with an annual recurring revenue of BRL232 million. On the negative side, the downsell in large enterprise in our consulting business held net revenue expansion down to 102% compared to 120% in Q2 of ’22. As I explained earlier, we have already seen early signs of improvement in the conversion of our sales cycle to large enterprise customers in Q3, but we expect most of the impact to positively impact revenues in Q4.

Let’s now see how our margins performed within this strategy. On this slide, we can see the performance of both businesses in terms of profitability in the first 9 months of ’23 compared to the same period of last year. If we isolated quarter of ’23, our gross profit for both businesses went down year-over-year, mainly due to lower gross profit from large enterprise customers in CPaaS. However, when we look at the results accumulated in the first 9 months of the year, we see solid performance in both businesses with increased margins, demonstrating our ability to navigate this dynamic competitive environment without losing focus on the medium and long-term profitability. The performance of our CPaaS business in the first 9 months of the year has been above our expectations.