Hi, good morning. Welcome to another earnings release presentation by Bemobi. We'll be discussing the second quarter of 2024. My name is Nicholas. I'm our IR officer at our company. We have Pedro Ripper, our CEO, André Veloso, our CFO, and João Stricker, our VP for Operations in Brazil and Latam. This session is being recorded. Attendees will be on listen-only mode during the conference, but they'll be able to see the speakers and see the slide deck. You also have access to simultaneous interpreting into English at the bottom left. You can click on Interpretation and choose your language.
For those that don't speak Portuguese, we have an English channel that can be used by pressing the button called Interpretation on the bottom right corner of your screen, and then choose the option English. I would like to highlight that after the presentation, we will hold a question-and-answer session. And now I switch back to Portuguese. Logo após a apresentação de nossos diretores, iniciaremos a sessão.
Right after our presentation by our officers, we'll have a Q&A session only for analysts and investors. You receive further instructions on how to ask questions right then. Now, before we proceed, we'd like to say that any forward-looking statement that we make here today regarding our forecasts, projections, and operating or financial goals are based on beliefs by our company, as well as on information that is currently available to us. This involves risks, uncertainties, and assumptions because it relies on events that may or may not happen in the future. Investors must understand that overall economic conditions and other operating factors could have an impact on our future performance, leading to significantly different results. Now, let me hand it over to our CEO, Mr. Pedro Ripper, who will start our presentation. Goo
Good morning, Nicholas. Thank you. Once again, welcome. Good morning.
Let me briefly talk about our results in the second quarter of 2024. As usual, one of our metrics is our geographic coverage. Little by little, we continue expanding geographically speaking. This is more connected to phone carrier. We are now in one additional country. We're also expanding with our clients. In the past two quarters, we are now having a breakdown between enterprise clients, which are larger scale companies that are closer to BRL 250,000 in revenue a year, and average- sized businesses. This is a recent segment that we started working with to accelerate growth. So we are working with businesses that are below the metric that I mentioned. So we have been gradually increasing the number of clients, and especially for payments, which we've been focusing on, in addition to having around 400 clients, and we'll go into details in the next slide.
We want to become one of the main partners for recurring service businesses in Brazil. We are partners of seven out of 10 of these big businesses, and we may have news in the future, and we're going to expand this universe to the top 20, which is going to give us better outreach. Let me recap it with you. We have four offerings right now. Two of them are intimately connected, which is software as a service with the platform that we call Omni Engage and our payments platform. In most cases, we combine these solutions. We have an integrated solution we call vertical payments. The third area is microfinance. Then we have digital subscriptions, and we have overlapping between different industries where we offer more than one of these services. In many industries like telecom, utilities, and education, we're able to have cross-selling.
When we look at clients, we see good progress with payments. As I was saying a minute ago, we have a bit over 400 clients here. These are recurring revenue clients. Of course, we're very focused on Brazil here. Nine of the biggest companies are here, and we have 400 medium clients. Right now, they mainly offer access to internet, so they are ISPs or they are big educational groups. For enterprise accounts, we have big telecommunications carriers or big energy distribution companies. This portfolio will become a bit more diverse over time. When we look at SaaS, and of course, this is connected to payments, we have a broader universe of clients. We have 50 enterprise clients enjoying our SaaS offerings, and we have a little bit under 1,300 medium clients.
One of our hypotheses is that even though oftentimes we sell SaaS with digital payments, this is actually an opportunity for us to take companies vertical when they use our relationship software because we can start offering payments. In most cases, payment clients are a subset of SaaS clients. So over time, there's a trend of bringing these numbers closer as we go deeper into the client base for SaaS. There may be a negative here with medium-sized clients for SaaS, which has to do with Agenda Edu, which we acquired at the end of the year. We were cleaning their database, and they are consolidating their old platform into one single platform for Agenda Edu. So as they shifted this, some clients didn't renew their contract. So if we eliminate this one-off effect, then we also had a very good positive growth in SaaS.
With microfinance, we have 32 clients. We have phone carriers, and with phone carriers, we have different offerings like advance of airtime or digital top-ups and under this umbrella, we also have mobile scoring so we use the behavior of the users of mobile networks to have credit scoring. In these cases, our clients are usually financial institutions and banks. I'll be going into detail for this segment in the next slide. Finally, we also have a digital subscriptions business. This is the OG. This is the oldest we have, and we have 94 clients all over the world. In this case, 100% of these clients are mobile carriers. Now, let's talk about B2C. This has to do with volume, with revenue generation. For payments, the best metric here involves a take rate so we see the amount of value that we're able to capture from these transactions.
So we use the TPV for that. We've had consistent growth year- on- year and quarter- on- quarter. Year- on- year, we have 33% of growth, which is significant growth of our TPV. For SaaS, we also had expansion when it comes to the licenses that we have. And this is not necessarily connected to end users because a company buys the SaaS solutions, and then behind that, we have end clients or end customers. For ISPs, it is the people who subscribe to broadband. At a school, it is parents and students. So we also had very good growth here year- on- year, 51%. And we had a 4% growth quarter- on- quarter. And this is basically a precursor of our base for upselling because we're going to try and integrate payments into the SaaS platform. This is what we did last year.
For microfinance, as I was saying, this indicator is a hybrid of credit granting based on advance of airtime and credit scoring that we were able to sell to financial institutions so that they could get credit cards approved. We had a minus 5% result here: year-on-year, it's - 4%, and quarter-on-quarter, it's - 5%, and we had two impacts here. The credit scoring business grew a lot. However, it is a small business. Maybe it is 20% of the whole package, and we have a more mature business of advance of airtime, which had negative results, so the net impact of that is positive growth of a smaller business, but negative growth of the bigger business, so we had minus 5. With the advance of airtime issue, it's about market dynamics. We didn't lose any clients.
But the advance of airtime has to do with the amount of free balance that they have because you need to charge them back. And in our mix for telecommunications, we were a bit more contained in the credit that we were granting. So we were protecting profitability, but we had lower volumes. We do not believe that this is going to change in the short term. We believe that this is here to stay for a while, but we should grow a lot the credit scoring business. So as it gains volume, we should offset these impacts. Finally, something that we haven't discussed as much, but which has been really interesting, is the digital subscriptions business. I think one or two quarters ago, somebody asked if we would see digital subscriptions as legacy at Bemobi. Now, I prefer to see it as a mature business, not a legacy business.
It is mature. It's not going to blow up in growth, but there's still potential for growth. In 2023, for the first time ever, we didn't grow, but I think that we've proven that this business is more resilient than what we expected. So for the third consecutive quarter, we're back to growing the number of subscribers and also revenue at a smaller scale. So even though this is a small business in the whole of our operations, it is resilient, even though we have a specific number of countries and very specific conditions under which we operate. When it comes to our revenue, we didn't make adjustments related to the Oi negative impact. As you may remember, we had very negative impact in 2023 when Oi was sold. This was a big partners of ours.
It was sliced up and sold to their competitors, and this gave us negative impact year- on- year. We wanted to have clarity on ongoing organic growth and on this one-off negative impact of a client that actually disappeared. The good news is that right now, this is no longer significant. So we no longer believe that we should have this breakdown. So we are going back to the regular template, and we normalize our revenue only according to foreign exchange fluctuation. So we have 11% of revenue growth quarter- on- quarter, and we have an adjusted result of 14%. So we would have grown a bit more without effects. So this is consistent to what we've been discussing in the past quarters.
We said in the past that Oi would no longer have a negative impact on us and that the rest of our business was doing well and that we'd have acceleration in payments. And this is what we see in our Q2 figures. I think this goes to show that what we've been talking about is actually coming to fruition. Now, let's zoom into revenue. We see the revenue that we had in this quarter, and we see our revenue up to date with a bit less growth. So this is Q2 vis-à-vis Q1. In Q1, we had resumed a rhythm of growth that hadn't been adjusted by the FX exchange rate. Now, as we zoom in even more and we look at payments, payments is an accelerator. It is growing more than the rest of the company.
So for this quarter, we have basically 15% of growth compared to the last half of the year, a bit under 16%. We can also have a breakdown. We have digital payments. We have a legacy business that comes from an acquisition that we had a few years back for in-person top-up. So this is considered a legacy business. We have a slight decrease for it, but payments as a whole is growing a lot. So this more mature business does not really have a negative impact on us. Regarding our breakdown per region, we don't have many changes year- on- year. This is what we have for Brazil and for the international market. Even though we have a negative FX, we have a balanced mix. We have around under 40% for the international market. It is worth pointing out that we have better traction from the international market.
So when we cancel out the FX impact, we had good performance, which is good news after a very troubled 2023. We had a war between two important countries. We had lots of FX fluctuation. And in spite of all of that, we had a good mix, and we had a reasonable performance in these countries. Finally, for revenue, we don't see significant changes, but we see that the combination of SaaS and payments, which oftentimes is priced and sold together, starts being very, very relevant here. We're at around 60%, over 60% of our revenue is in what we call vertical payments. So this was a macro perspective. Let me now hand it over to our CFO, Mr. André Veloso, who will be talking about our financial targets.
Thank you, Pedro. Hi, good morning. I'm happy to be here with you once again to talk about our results.
As you could see, we had very robust results this quarter, and this is important for us. As Pedro was saying, 2023 was a perfect storm. Since the second quarter of last year, we've been gradually and consistently improving our performance. Now, for this quarter, we see much more clear results. We see the biggest and most important financial metrics showing two-digit growth, so let's get started with our presentation at the top left. We have our gross margin here, our gross profit. We had 9%. We got BRL 106 million and year-to-date, BRL 209 million, so 5% growth. We have slight retraction in our margin. This happens because of our higher expenditure with acquisitions, which is directly related to expanding our subscription business that Pedro was mentioning.
At the bottom left, with OPEX, in the past 12 to 18 months, we've been promoting a number of internal actions to optimize our functioning. In this sense, even though we have more employees and even though we had a bargaining agreement over this time, we are also controlling expenditures in a better way, and as a result, expenditures have not been growing as quickly as revenue, so we have operating leverage, as we have been discussing in the last calls. Year-to-date, this is really clear. We only have a + 2% year-on-year, and quarter on quarter, we have + 7%. At the top right, we see an 11% increase for the adjusted EBITDA to BRL 48 million and BRL 95 million year-to-date. We also have a slight margin expansion year-to-date where we had 0.6 percentage points.
We believe that as we have new clients coming into operations with us, there's going to be a trend of expanding our margin because of our initiatives, but this is not going to be linear every quarter. Now, when we go to the next slide, at the top left, we can see our adjusted net income, excluding the swap operations for our shares. This is definitely our highlight for this quarter. In the second quarter of this year, we had almost BRL 40 million in income. This is basically twice as much of what we reported a year earlier, and year-to-date, we also have 51% of growth, so we get to BRL 63 million. In both cases, we have a net margin that is really high, that is above 20%.
This has to do with improving our operating performance, as we were discussing in the previous quarters, but we also had a better financial result in 2024 compared to 2023, and we had a lower taxation load on profit, especially for the second quarter, because of the approval of the distribution of profits according to our meeting in April. At the top right, we can see our operating cash flow generation. In both cases, both quarter on quarter and year-to-date, we had a 15% growth, so we got to BRL 36 million and BRL 70 million, respectively. In both cases, our cash conversion really draws our attention because it's over 70%, over 73%. This is the result, basically, of an EBITDA expansion with a level of CAPEX that is basically stable.
It's also worth noting that on a yearly basis, in 2023, in the first quarter, we had a CAPEX that was a bit higher than usual because we were setting up Bemobi offices in Rio and São Paulo. So this is why our cash conversion, in this case, is below 70%. But these are very, very significant numbers, and it shows how asset-light our business is. On the next slide, we see the evolution of our cash balance. In this case, we can compare it to the previous quarter. We had a good generation of operating cash in this quarter, almost BRL 36 million. However, in this case, we were using lots of working capital, BRL 20 million, for our operations to offer installments. We see this information at the second-to-last column of this chart to your right.
So on simple terms, the cash coming from our operations was BRL 32 million. And usually, we have extraordinary payments. So usually, in the second quarter of the year, we have more expenses, and this happened this year too. We had BRL 45 million reals in interest on capital. We had to pay profit sharing to our employees related to last year. We had the share buyback operation, and we had our final installment for Agenda Edu and its acquisition. So even with these one-off disbursements of BRL 60 million real, we end this half of the year with BRL 514 million real. We still have BRL 56 million real, which were used for the installments receivables balance. And please remember that this is a discretionary decision by our board.
Because of our current cash position, we decided to increase and improve our cash flow by funding this operation, but we could revisit this decision. We could use third-party capital. So this cash could go back to our business's cash balance. So this is why we've been pinpointing this information as this balance grows. Finally, I would just like to say that, of course, we are keeping an eye on opportunities for mergers and acquisitions. We are using our cash in a share buyback operation. We're also considering distributing profits to our shareholders. Of course, having M&As is the primary potential use of our cash balance. Thank you very much, and let me hand it back over to Pedro for his final remarks. Thank you and enjoy your weekend.
Excellent, André. Thank you. Let me go to our closing remarks before our Q&A session.
Let me give you some food for thought. Around two years ago, we started understanding that the payments segment was becoming more mature. We saw specialization of different players with different propositions. Brazil is a very sophisticated country, a large country for digital payments. It is a good environment for companies like us to thrive. So we placed the bet on vertical payments with a more sophisticated operation in payments. We believe that a good chunk of payments is going to migrate into this model, which is better integrated to the industry and to software compared to what we would call a horizontal model. This strategy is now coming to fruition. Our product is getting more mature quarter by quarter, and our clients have been validating our hypotheses. They trust Bemobi to take care of payments for them.
So our financial results show that our client trust shows that our offering maturity shows that. So we are still betting on that. For research and development, for CAPEX, and for future M&A investments, we're going to be taking this into account because this is a sure bet. We're confident, and we think that we have lots of room for growth here. Our TPV shows that. Of course, we can't look at the TPV as something isolated. Of course, we need to see our take rate, but the TPV is a good indicator. As André was saying, even though we have an asset-light business, we have a scalable business too. So we're able to basically double or triple our TPV and to a smaller scale revenue without needing a proportional level of effort with fixed expenditures.
Of course, we're going to increase fixed expenditures because as we gain scale, we need to invest on it, but we have a gradual improvement in margin. As we go into new countries or new offerings, of course, we let go of a bit of the margin to build a new wave, but inside this wave, there's a lot of scalability for operating leveraging. As André was saying, the highlight for this quarter is income. Of course, we have non-recurring impacts, for instance, taxation related to interest on own equity, but we had improvements in financial performance and operating performance, which indicates that we should have good, robust income growth. Now, let me stress something that André talked about. It's been a few years, and it's been a few tough years.
We're now feeling a bit more comfortable, and with our great capital structure, we may be a bit more aggressive in dividends, interest on own equity, and even buybacks. This is in line with what we've been doing in the past few years. We had a robust buyback operation in the past few months, and we also increased our interest on own equity. We believe that we will be able to keep on doing that as our M&A is compatible with the cash that we have. So since we usually buy companies that are generating cash, this model is probably going to be sustainable with a higher dividend payout. Our minimum follows the law. Let me give you some insight. We see good rates of new clients. Since we are in a large-sized B2B market, we have longer cycles.
But signing new contracts and putting new companies into operation are good indicators, and we're doing well with them, so we are optimistic. We believe that the trends that we see in Q2 are going to be applicable in the near future, so we finish our brief presentation with a message of optimism. The things we've been betting on have been paying off, and it's about resilience too. By the way, 2023, we've been saying that it was a tough year, but it's good to put it into perspective. What we call a perfect storm is a company with an EBITDA of 32%, a cash generation of 70%, an increased cash balance year on year, and we let go of growth by only 2%, so even though we are exposed to a volatile industry, because of our revenue distribution and our revenue nature, we are very resilient.
So we were complaining about a very tough year, but we improved our cash balance. And we had a 30% EBITDA margin and a cash generation of 70%. I don't think every business can say that. So we're past that. In 2024, we still have good financial results, but we're now back to a very important metric, which is growth. I think, as a symbol, we need to go back to a two-digit growth, even if it's a low two-digit. But this goes to show that we still have the opportunity to accelerate more. Nicholas, could you please provide us with the instructions on the Q&A? Let me stop sharing my screen too.
Wonderful. Thank you, Pedro. You have two options if you want to ask questions. You can raise your hand through the button "Raise Hand," or you can write them in the chat. We see a question in the chat from Maria Clara, an analyst from Itaú. Maria, I'm going to unmute you.
Oi, pessoal, bom dia. Vocês me escutam?
Hi, good morning. Can you hear me? Yes, we can. Excellent. Thank you for taking my question. Could you please talk about the size of opportunity you have in the payments business? Because this has been an important road for growth. So, Pedro, could you please tell us what we could expect from this in the short, medium, and long terms?
Of course, Maria. You know, we call this vertical payments. And it ends up meaning two things. It is vertical because you're creating specific solutions to very unique needs in different industries and segments. And it is vertical because you have deeper integration into customer journey systems. This is a huge industry.
Right now, we're actually located at a subset of this industry, which is essential services with recurring payments. It is the kind of bill that a family pays monthly, and we're talking about the bills that we make an effort to pay, for instance, basic utilities, broadband, phone bill, or even your tuition, so we have a potential here of 1 trillion in TPV. The full 1 trillion is not necessarily addressable by Bemobi, but the take-home message here is that there's enough TPV for us to grow, so if we look at adjacent segments with the current value proposition, I believe that even though we are subject to the challenges of competition and execution in this industry, because it is a challenging industry, there is space for growth, not in the very long term. Again, we do have a competitive, sophisticated market here.
So Bemobi needs to show its value and its advantages. It is important to stress that the payments market is actually many times bigger than this. And what we are describing right now is our current bet, but we have other flavors of vertical payments where we aren't active yet. So either organically or inorganically, this may open up new roads for growth. In summary, we can easily double or triple this business right now without requiring such a significant share. What we're doing is already very broad. And I'm not even taking into account what I would call other niches, where we have a value proposition that is broader because we are not active in that yet. Maria, does this answer your question?
Yes, it does. Thank you.
Thank you.
We have a question from Marco Nardini. Marco, please go ahead.
Good morning, Pedro, André, Nicholas. Thank you for answering my question. I have two questions, actually. First, can you please talk about the microfinance business? If you could discuss this negative performance in this quarter, I'd appreciate it. And what could we expect for the next quarters? Are we going to have a negative trend? Also, could you please talk about credit scoring? Because I think it is an interesting part of microfinance. Now, my second question is related to SaaS. You showed very, very strong performance in this quarter. How much of this is organic? What could we expect from this business in the next quarters? Thank you.
Thank you for your questions and your attendance, Marco. Let me give you some perspective on microfinance as a whole. This is the smallest out of our four business lines. We have under 12% of participation here.
It doesn't have as much impact either up or down. In these 11%-12%, a bit over two-thirds or maybe three-fourths is related to microcredit based on data and voice top-ups. We have the credit scoring business, which is significantly smaller but has accelerated growth. Let me explain how this business works. On the one hand, you need to acquire clients. In this case, we're talking about mobile carriers who choose to offer this modality of services to their end clients. In this case, we have stability. We haven't lost any important clients. We have the same clients that we had before. The second thing that is going to explain either an expansion or a retraction is our ability to offer credit in a healthy way with good recovery in a sustainable business.
Now, this is very much related to variables that are outside of our control, for instance, how much free balance a client has and how much you're able to collect on this debt over other debt collection efforts like data and voice. So it depends on how much we can collect and how much free balance they have. And then we need to be more contained in the amount of credit we grant. We believe that in the previous quarter, we had a tougher environment for these grants. So to preserve a healthy margin, we hit the brake a little bit in the number of offers that we made. So we didn't reduce the number of clients. We actually reduced the number of credit offers. And that's why we reduced revenue. Of course, we have long cycles for the telecommunications mix.
I don't think we'll see a change in the short term. I think that this business is going to keep stable, and we may see slighter retraction in the future, but I don't expect any big swings, neither up nor down. However, something could change this as we get new clients. Of course, Bemobi is always looking for new clients to try and offset the curve upwards. Meanwhile, should we lose a client, we could see the opposite effect. But I wouldn't expect either positive or negative surprises here. If we see any changes, it's going to be around 2% or 3%. So not really significant. Regarding the other business, which is credit scoring, it's really promising, even though at an absolute scale, it's still a small business. We have very high double-digit growth here, 60%-70% year- on- year. So this is excellent growth.
Contrary to the other business, we are focused only on a few countries. Just a few months ago, we were focusing only on Mexico, and now we are in Colombia, which is great news because we see that there is a certain level of replicability. We're going to improve our operation in these countries. We believe that in the markets that we are present, we can double this business in one or two years. As we increase our confidence, we're going to pick other countries that could accept this kind of offering. It's usually a country where they have high adoption of banking services, but they could still use lots of credit cards. They need to understand the credit profile of some clients. They are interested in this kind of offering.
In Brazil, even though we are a very large country, we have a very high level of adoption to banking services. So it's actually the opposite. It's not as promising. But in the countries where we're located, we have at least a dozen countries where we need more banking services and we need more credit scoring. So I think we have a very positive trend here, but I'm always very cautious with a new business. We only have two countries at the moment, so I wouldn't just say right now that we can scale it up to 10 or 15 countries. But at a certain point, we're going to integrate these businesses. And as we grow in confidence, you're going to have more visibility of how this business is doing in itself. Marco, was that clear?
It was. Thank you.
Excellent.
We have one last question, Pedro. It's a question in the chat regarding M&A perspectives.
Great. I do have a few comments on M&As. Bemobi is a company with a history of entrepreneurship. We haven't chosen the obvious options. Of course, this is highly connected to changes in our market. I think we even got to an offering that is hard to understand because we had three to four different business lines. Each one of them has its perks, but it's also a challenge to have this level of diversification. After the last two years, we can see that in our businesses, two of them have been highlights. And when I talk about the market, I'm talking about clients. We see that they trust us and they want to sign a contract with us, which is a good sign that we are on the right track. We take that into account for M&As.
In the past, we used to have a broader range of potential partners, but in the last six months, we've been looking more closely to players connected to SaaS and payments. We want to expand or accelerate the businesses that we have right now. We are still very much active. The good news is that Brazil is the birthplace of such interesting companies. Sometimes they don't have a very refined go-to-market, but they could bring a lot of value to Bemobi. We can't say anything about M&As because we don't have anything concrete to share. There may be some good things. We think that we have better prices compared to two years ago. We have CAPEX that are better. We have more clear perspectives. We have investors who want to build something with Bemobi.
If you've been keeping up with us, overall, either we have earnouts or progressive purchasing, where we build participation. And we help entrepreneurs scale their business up. And as this works, for Bemobi, we have access to a good asset at a discounted price. And for entrepreneurs, they enjoy less execution risk, and they get an ally for scaling it up. This is an interesting model. And in the past few deals, even the small ones, this worked really well. We had a small acquisition last year with a company called Nomo, the acquisition of Agenda Edu, the acquisition of Tiaxa. We didn't follow this format for all of them, but two out of three of them used this kind of model. So entrepreneurs had to place a bet on us. And we're talking about small operations, but they are strategic.
This has been proven to be a good choice. It stresses the idea that this is a good model, and you could expect more deals like this, but connected to payments and SaaS. Nicholas?
Excellent. This is the end of our earnings release presentation. Thank you for your attendance and have a great day.