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Zenvia Inc. (NASDAQ:ZENV) Q3 2022 Earnings Call Transcript

Zenvia Inc. (NASDAQ:ZENV) Q3 2022 Earnings Call Transcript November 17, 2022

Operator: Good morning, and thank you for standing by. Welcome to Zenvia's Q3 2022 Earnings Conference Call. Today's speakers are Mr. Shay Chor, Zenvia's Founder and CEO; and 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. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question-and-answer session. . 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 welcome to Zenvia's earning call. I'm Cassio Bobsin Founder and CEO. Today we're going to review our performance for the third quarter and nine month period of 2022. Let's start with slide four. Since our IPO, we have been delivering on our promise to expand gross margin and increase profitability. I'm very proud to report that we registered the best profitability metrics recorded as a listed company for a quarter, including posting free cash flow. This is a direct result of a better revenue mix, backed by the expansion of our SaaS business, together with the implementation of a strict cost control plan. As we are seeing a very competitive environment in the CPaaS business with strong pricing pressure, we have been taking a series of measures to reduce overall expenses, putting Zenvia on a clear path to profitability.

Also given the challenging global environment at tech companies management is now very much focused in improving the company's capital structure and maximizing cash flow. Therefore, we recently announced two important initiatives. First, we have significantly reduced our funding gap until the end of 2023 by renegotiating the earn out terms with D1 and Movidesk. Second, we implemented several cost cutting initiatives, which included downsizing of our corporate structure as announced last week. Shay will cover both initiatives in more detail during his remarks. Also new this quarter, and as part of the guidance we provide to the market, we are introducing a full year EBITDA guidance. With it we're also adjusting revenue guidance down and adjusting up our gross profit margin.

Let's now take a look at our performance during this quarter. We're reporting first evolutions on all our key metrics, net revenues, adjusted gross profit and adjusted gross margin. As you can see, we were able to increase the profitability of our operations, and more importantly, convert gross profit into EBITDA and free cash flow. We did this despite the challenging and more competitive environment, like we lived in this quarter. Net revenues were up 10% while adjusted gross profit jumped 50% adding 12.7 percentage points to our adjusted gross margin, which attests our commitment and path towards profitability. On the next slide, and looking specifically at our gross margins, we can see the evolution of our gross profit margin since the first quarter of 2021 and the IPO until today.


We have delivered on the promises made during our IPO. We have expanded our margin significantly, a double digit expansion, whether it is since the IPO or on a year-over-year basis. In the nine month period, we recorded a gross margin of almost 40% as you can see in the orange bars to the right, which is close to the top range of our updated guidance for the full year of 2022. This is yet another proof that we're walking the talk in our path to profitability. Looking ahead, we intend to accelerate the integration of our SaaS products and strengthen our cross hiring. In the CPaaS business our plan is to continue to pursue balance between volumes and profitability to maximize gross profit. We have already been changing the customer experience of more than 300 million humans in Latin America with our CX platform by improving the way in which brands communicate with customers.

The good results have followed these initiatives and now the innovation we're bringing to the market are already reflected in our profitability. However, there's still a huge whitespace opportunity in this market and have just began to tap it. There is a promising future ahead, and we're ready to take the opportunities. We will be doing all these diligently and with a strict focus on cost control and cash preservation. We aim to continue increasing our profitability and maximizing our returns. I will now turn the floor to Shay for his remarks. I'll be back after that for the Q&A.

Shay Chor : Thank you, Cassio. Hello everyone and thanks for being with us today. I would like to start by breaking down our revenue and adjusted gross profit mix by SaaS and CPaaS. As we started to report like this only in Q2, we decided to present Q3 numbers compared sequentially so that you can all fully understand our path to profitability. When we analyze the performance of our revenues, on the chart to the left, you can see the sequential drop in revenues of 11.5% which was mainly due to a 22% decline in CPaaS. This decline reflects our decision to focus on profitability, which led to lower volumes given the much more competitive environment with strong pricing pressure. On the other hand, our SaaS revenues went up almost 12% sequentially, and contributed to offset part of this decline.

Let's now look to the graph on the right. It shows the mix of adjusted gross profit. We see sequential increases in both SaaS and CPaaS margins, which means that our focus on profitability paid off. CPaaS delivered a solid 15 sequential increase, while SaaS grew almost 12% which consolidated into 12.5% total increase in adjusted gross profit. As you know, we have been transforming Zenvia into a SaaS company since our IPO. During this quarter, we can see how our software business already represents 57% of our gross profit, which demonstrates we are effectively more SaaS than CPaaS. On the revenue side, SaaS represented 40% of the total in the quarter, a live sequential improvement from Q2 when SaaS was 29% of total. Important to highlight that the third quarter is the first in which we fully consolidate the D1, SenseData and Movidesk.

Looking ahead long term, we expect SaaS to represent about 70% of our gross profit. And as Cassio said, we are just beginning to tap the huge whitespace in the SaaS market in Latin America. Let's now address the cost side. We have been implementing cost cutting initiatives throughout the year, especially as we accelerated the integration of the acquired companies and started extracting synergies. This initiative also included reducing non-personnel G&A expenses, such as consulting and travel among many others. Last week, we announced the downsizing of our corporate structure equivalent to 9% of the total workforce in Latin America. We expect this to reduce our personnel expenses by BRL40 million in 2023. In order to execute this, we expect to incur one time expenses of approximately BRL5 million in Q4 '22 mainly related to severance.

I would like to share with you that we were very transparent with all our humans regarding this process with all communications made individually. We are also supporting affected employees by extending healthcare plans and providing career replacement opportunities. Finally, we also hosted several meetings with all other employees to reaffirm our commitments and expectations going forward. On top of the downsizing, we are implementing a plan to generate non-personnel savings. Altogether, we expect to bring our costs down by BRL70 million raised on a yearly basis as of 2023. Moving on, we are happy to report that all the initiatives implemented made us reach the best profitability metrics recorded for the quarter since our IPO. In this third quarter, we recorded BRL9.9 million normalized EBITDA, which excludes certain non-cash items related to future earn out payments evidencing the profitability of our operations.

This means that we have been able to convert high gross profit into EBITDA and cash flow. This gives us confidence to introduce a new EBITDA guidance for the year, which we'll discuss in the next slide. In its 19 years of history, Zenvia has built a pattern of sustainable and profitable growth. The decision to become a SaaS company has taken a toll in profitability in the last couple of years. We believe the third quarter is a turning point and we are already returning to positive EBITDA. Therefore, we feel confident to introduce a full year 2022 EBITDA guidance, which we expect to be in the range of BRL10 million to BRL15 million. This is the normalized EBITDA, again, excluding non cash adjustments related to earn outs, and also one time expenses related to the downsizing we have just announced.

Another positive metric of the quarter was the positive free cash flow. This slide shows a normalized free cash flow bridge, which allowed us to generate BRL3.5 million in the quarter. For transparency and to help you understand the recurring cash flow generation this number excludes the working capital instruments that we use in the quarter to ensure a higher level of cash balance. And finally, we announced at the end of October the agreement with D1 and Movidesk in terms of their earn outs, which allowed us to drastically reduce our funding gap. As seen in this slide, we were able to reduce the total amount to be paid by the end of 2023 to approximately BRL30 million from BRL360 million by extending the payment schedule to the fourth quarter of 2026.

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This means we can remain totally focused on continue expanding gross profit and generating positive EBITDA. As you can see, this was indeed an eventful quarter, with a lot of important changes in the market dynamics and also inside our company. All recent initiatives have allowed us to introduce the new full year EBITDA guidance of between BRL10 million and BRL15 million as previously mentioned. Additionally, we're also updating our full year 2022 guidance with some important changes. We are reducing our revenue guidance, but we're increasing our adjusted gross margin. In terms of the revenue guidance, the reduction is mainly concentrated in the CPaaS revenues, and it stems from our focus on profitability. The new revenue guidance is projecting for 2020 to a range between BRL740 million and BRL790 million, which implies a year-over-year growth of between 22% and 31%.

SaaS revenues should be in the range of BRL250 million and BRL275 million, already including six months of Movidesk, while CPaaS revenues should be in the range of BRL490 million and BRL515 million. Our adjusted gross margin is projected to be higher reaching between 38% and 40% on a 5.7 to 7.7 percentage points expansion from '21. This figure is taking into account the five percentage points increase in the CPaaS adjusted gross margin to 27%, with the SaaS adjusted gross margin remained at 65%. With this, we conclude our prepared remarks and we are ready to take your questions.

To continue reading the Q&A session, please click here.