Good morning, welcome to the conference call to disclose the results of Bemobi for Q1 2023. I'm Nicolas, Director of IR. Today are with us Pedro Ripper, CEO, André Veloso, CFO, and João Stricker, our VP for operations in Brazil and Latam. This presentation is being recorded. All participants will be able to listen to us and follow the presentation. You can also access the simultaneous translation.
We have an English channel that can be used by pressing the Interpretation button on the bottom right corner of your screen and choose the option English. I would like to highlight that after the presentation, we will hold a question and answer session. Now I move back to Portuguese.
Soon after the presentation, we will begin a Q&A session exclusive for analysts and investors. Instructions to make your questions will be provided later. Before proceeding, and as we usually do, we would like to clarify that any forward-looking statements that may be made today relating to Bemobi's business outlook, projections, operation and financial targets, merely beliefs and assumptions on the part of the company's management, and are based on information currently available.
They involve risks, uncertainties and assumptions because they refer to future events and therefore depend on circumstances that may or may not materialize. Investors should understand that general economic conditions, industry conditions, and other operational factors may affect the future performance of Bemobi and conduct to results which differ materially from those expressed in such forward-looking statements. I now turn t he floor over to Pedro Ripper.
Good morning to all.
Thank you to the investors and analysts who follow us. We are going to give you the highlights of Q1 and speak about our view of Q1. I'd like to make a brief introduction. We are a technology company that has a B2B2C model, and we focus on digital journeys with an emphasis on payments, microfinance and Digital Subscriptions.
We have been working with telcos for a long time, and we have been penetrating the financial sector and utilities as well. Historically, we built four solution lines, and this is Digital Subscriptions that were we started 15 years ago, then digital payments, which has gained traction after an acquisition we made. Microfinance and platform-as-a-service. This matrix is very simple, but illustrates what I said in my introduction.
Originally, we became a B2B solution B2B2C solution provider by partnering with telecom providers in Brazil and throughout the world. Today, we have 100 carriers that we work with, we provide several solutions as B2B or B2B2C, which we built around the telecom industry. More recently, we saw an opportunity to expand and to adapt or revamp some of these solutions and adapt them to other industries, especially utilities.
From the point of view of indicators that we share with you, we continue to believe that global exposure is extremely important for us in terms of growth. We operate in 49 countries now. The geographic expansion is based on partnerships with carriers. In the mid to long term, we are going to use our footprint in these countries to expand into other industries.
From the point of view of partners, we have relationships with large companies. This allows us to grow. We have 112 partners. It allows us not only to grow, but also to diversify. This gives us resilience. We have also added one new partner. We have launched more services in Q1.
We have an addressable user base, which is extremely large. In terms of our four types of solutions, we have now one new partner, Intel. We have one new partner as well, BBVA, under microfinance. Specifically in credit scoring. As you remember, this is a relatively new business line. It's been going on for one and a half year. It's been growing extremely fast.
We use data that come from the behavior of customers in telco, and we then draw a credit profile of those clients who are not into the bank system. This offering grew in the fintech area. We now see traditional banks such as BBVA, who see value in this alternative data to create a more effective score for this segment of the population.
We have no new partners in operation in Q1 in Digital payment, although there are new contracts, and I'm going to talk about it later. In terms of Digital payments, remember that we made a bet that goes beyond payments, but we developed a set of solutions for payments to penetrate a new market, in addition to the telco and to the banking sector. We made a bet on utilities, and we focused on the major distributors, on the major concessionaires distributing energy.
I would like to recap what we did here. We prioritize our efforts first in the Brazilian market. Major distributors today are extremely concentrated, this took place after the privatization. There are six major private groups, they serve 75% of the market. In terms of TPV, or the total value transacted by these groups, if we do a proxy in terms of the number of households, this is a similar number.
We have a second group, which is interesting as well, but we are showing it separately, these are companies that are still controlled by the Brazilian government, and they have a lower penetration. We began to work with this first group, there is potential also in the second group.
When we look at this market as a whole, the numbers are huge, BRL 250 billion in terms of transaction value. We operate in the residential segment. We are a B2B2C rather than a B2B, so the residential segment is the one to which we can offer better solutions given our portfolio. We focus on delinquent customers, which are a subset of this huge set of residential customers.
BRL 75 billion at a certain point are overdue. The digital payment journeys which we develop for telcos and payment solutions which are connected with these digital journeys, they were redesigned to enable us to work with this segment. We have some promising news to share with you. Until the last quarter, we had made achievements in this segment, live and scaling.
That is contracts that have been signed and for which we have implemented a first phase, they are now organically growing quarter on quarter. In this initial snapshot, we had a first partnership with Energisa to penetrate the segment of payments with defaulting clients and then the regular clients.
We had also shared with you that we had two small regions of Equatorial, one in the north and a region in the state of Rio Grande do Sul. Therefore, we had 13 concessionaires that allowed us to penetrate 13% of the initial market that I showed you. We were able to validate many of our investment thesis, the economics, the potential for growth. We did that in Q1, and this is what we have communicated to you.
The news, the good news is that we have won new deals in the last 90 days. Equatorial, because of the initial success of this partnership, carried out two bids, one specifically for a concessionaire that they bought from another group. In all the other regions, four major regions served by Equatorial, they went through a second bidding process.
Bemobi was awarded as the winner, and Bemobi is now going to operate in 100% of the regions operated by Equatorial, and we are going to replicate the solutions we developed for the first two regions. This is very promising. Neoenergia, the largest group in Brazil in terms of TPV, also carried out a bidding process. We won nearly 40% of the bids, and our expectation is that we may grow this percentage next year.
Last but not least, we have signed a commercial agreement. We have had the green light. We have another major group in terms of market percentage. We have had the green light from them, so we are beginning to implement projects within this large group. When we look at this, and when we look at our target customers, this allows us to draw some conclusions.
Although it is a small scale business as we compare it to our business as a whole, the thesis developed a year ago is becoming more concrete. We are seeing margins, we are seeing results in line of our expectations. We see that what we propose solves the problems that the market has. That seems to be the case.
We have been able to find a solution to reduce defaulting, to digitize the relationships of these large clients with the customers. This ratifies our ideas, and on a more tactical level, it creates a growth engine that allows us not only to diversify our business, which is extremely important in B2B2C, but this growth engine will be extremely important as we head towards the end of the year, and this ramps up and gains scale. In 2024, we may double or even treble the business volume of this year.
This is an indicator. This is a leading indicator of the revenue and new business. The fact that we are able to penetrate a new sector by leveraging the solutions that we already had, allows us to think in terms of scaling up our operations.
That means we are able to grow revenue and contribution margin without necessarily increasing our fixed costs. We can build on the platforms and the teams. Of course, we will have to strengthen the teams, but there is an economy of scale and scope that is enabled by this achievement. This was the highlight of the quarter for us. In terms of B2B2C, we always share three indicators to try to give you a little bit more color about what happens with the end user.
We are going to give you some more visibility here, some more granularity. There was an external effect, the effect of Oi. Before going into Oi, I would like to highlight these three indicators. The number of subscribers at the end of the quarter was on average 34 million subscribers. Slight reduction relative to Q1 2022.
The positive highlight was in the microfinance market through granting of microcredit for voice, data and top up, and especially scoring. It grew 11% relative to Q1, 2022. We had a reduction by 9% year-on-year on the digital payment TPV. Where do these figures come from? We have to think here about the gradual phasing out of Oi from the Brazilian market, and the assets have been transferred to the three buyers.
The three other large telcos, TIM, Claro and Vivo. For us to see what happened here, we have Oi subscribers who left the base as Oi mobile no longer exists, and we captured part of this. There is a slightly negative effect. The same happened in TPV. Oi trends towards zero. In Q2, this is going to be zero.
Part of this value is recaptured by our operations with other carriers. There is a net negative effect which is gradually offset by the organic growth that we see in the other three carriers. I'm not giving a formal guidance, but I'm going to give you an indication of what we're seeing. TPV here in Q2 indicates a growth in absolute values vis-à-vis Q1. In a scenario where Oi is virtually zero, the other carriers continue to grow at a very healthy rate.
We will talk a little bit more when we talk about revenue. With this, organic growth year-on-year has been flattened. Despite that, the growth was 1.5%. If you look at the breakdown per region and per family of services, you see that there is a consistency between Q1 2023 and Q1 2022.
There was a small retraction in payments. If you exclude Oi, this has been growing more than the other business units. microfinance has been growing its share. In terms of international and Brazil, it's stable, but international could have grown a little bit more if we normalized it for the Oi effect. The effect there is felt for approximately a year. When we look at the top line, this illustrates what I've tried to explain before. We see non-recurring effects that we want to make very clear.
We have the FX impact, which is always going to exist and may favor or harm us because the currencies we deal with may appreciate or depreciate against the Brazilian real. There was an adverse effect of BRL 500 million year-on-year. This is the second quarter where the effect of the war in Ukraine will have an impact.
January, February and March last year, in last year, Ukraine was not in war. This effect is going to disappear in time. In the comparison year-on-year. The negative highlight is offset by organic growth, which was quite robust. This is a semester of transition. When we look year-on-year, we see a negative effect by BRL 9.5 million. I'll explain how we interpret that.
This is the net effect that is part of the revenue of Oi, which was larger than that has disappeared. Part of this revenue comes now from the services we provide to the other carriers. That gives us this net effect of BRL 9.5 million. This allows you to see the organic growth of the business by excluding those effects which are external and non-recurring.
If we do that, the growth was actually 12%. At the end of Q1, our revenue was BRL 137 million. What can we expect for the next few quarters? The quarter-on-quarter effect of Oi, let's look at Q2. We are halfway through. The absolute effect quarter-on-quarter, 90%-95% have been incorporated in Q1, given that a transition has already happened.
When we compare quarter-on-quarter, the impact of Oi is going to be very small. Year-on-year, this effect is still substantial because in Q1 and Q2, Oi was still very relevant for us. This allows you to understand that we still have sound organic growth. We are growing in the other carriers. The new growth drivers in utilities are doing well as well.
For some periods you will see that year-on-year. This is going to be seen. In Q3 you're going to see a 0 effect of Oi in absolute values. We will continue to show you that. At a certain point, these two variables are going to disappear and you will be able to see the organic growth of the company. With this, I turn the floor over to our CFO, André Veloso, who is going to explain the lines below the top line.
Thank you, Pedro. Good morning to all.
I think it's important to highlight the benefits brought by the resilience and diversification of our business model. As you will see, these characteristics allows us to mitigate against these external effects mentioned by Pedro. One of the highlights of the quarter was the improvement in our relative profitability indicators.
I'll start on the left-hand side. The gross margin in the first quarter of this year, it was over BRL 100 million with an expansion of slightly more than 300 basis points. This was because of efficiency gains, especially in the payments vertical. When we look at the OpEX chart, you see an increase by 8% relative to Q1 2022. This has to do with the personnel and staff.
Because in addition to the effect of the collective bargaining, we brought more people in for products and utilities to deal and drive all the initiatives mentioned by Pedro. When we look at adjusted EBITDA, it was over BRL 43.5 million in the quarter. A 3% growth relative to Q1 2022. With a small growth in the relative margin of 0.5%.
We believe that as the commercial initiatives bear fruit, as we have said in the last few calls, this margin should expand in the next quarters given the operational leverage of our business. Moving on to the next slide. You see the adjusted net income. If we exclude the repurchase of swap, which has had no definitive effect on our results, we see a growth by 15%, and adjusted net income was BRL 22 million in the quarter. This was because of the better operational results and the better financial results as well. When we look at the proxy for cash generation using adjusted EBITDA less CapEx, this is slightly lower than the value you saw a year ago. That includes the one-off effect of CapEx for the setting up of our offices in Rio and São Paulo, and that was for BRL 3 million.
These are one-off effects, so they are an increase relative to last year. Therefore, the conversion indicator was above 74%. Finally, when we look at our cash position at March 31st, 2023, this was BRL 575 million. A slight reduction relative to the end of 2022. This has to do with two one-off effects. The first one has to do with working capital. We used working capital above what we normally saw in our operation. Within this BRL 30 million, BRL 18 million had to do with the closing of the operation of Oi. BRL 6 million will be recovered by the beginning of the second semester of this year. The second effect has to do with taxes. We paid taxes when we redeemed financial investments.
Basically, these two effects explain the variation in terms of our cash position. As Pedro said, just as we saw last year, especially in the second semester, we should see strong cash generation, which will place us in a very good position for us to focus actively on M&A. Thank you so much for attending our conference call, and I now turn the floor back to Pedro. Before moving to the last slide, I just wanted to stress two topics in terms of the outlook. These one-off effects in terms of working capital and cash conversion, when we look at this quarter, we see that cash conversion is slightly better than historical levels. Just to give you a bit of predictability, these one-off effects were really one-off.
In terms of profitability, our initiatives to make adjustments to optimize costs, and if we exclude this one-off in terms of the working capital, we see that the metrics will be consistent with what we've seen before. We are in a quarter that is a quarter of transition. The B2B2C model has many advantages as it allows us to grow in an asset-light way and generate cash. This allows us to have strong and healthy profitability. On the other hand, we are linked to the destiny of our partners. We mitigate against that by having many partners preferably from different industries, and this allows us to be resilient. The other way to do it is to provide a cyclic solutions which create a natural hedge between them.
Not coincidentally, this has been a priority since the IPO, that is, slightly over two years ago. The mergers and acquisitions also were made to ensure that. When we think about this as strategy, it allows us to mitigate against the discontinuity of a partner. We were able to have growth, have profitability, although a historic partner was undergoing a very strong transition. For this B2B2C model to be promising, we will continue to look for balancing our solutions, our partnerships, looking for synergy. That we can reduce our exposure to a single partner or a single line of business. This process we're going through now illustrates why the diversification is so important. We continued very optimistic about the company because we saw a 12% growth if we exclude those effects. That creates a lot of noise.
The second message is that it's not quite obvious that a company that specialized in a major industry should be able to transfer its solutions to new industries. We are looking for large clients, and this will give color and context to our ability, and this opens many avenues ahead of us. We can take this to different countries, and we can also grow in different industries. This is also a major highlight for us that proves our assumptions and thesis relative to reality. The third highlight is that we have always been very disciplined in terms of contribution margin, expenses and costs. For some time now, we have been saying that we wouldn't be very aggressive in terms of acquisitions. That as we gain comfort, we could optimize costs, and this has been happening.
We will see this in the next few quarters in terms of maintaining and improving profitability in percentage terms of the business that we have and the new business we engage in. We had the IPO two years ago. We have recovered our cash position, and it's now very close to the level we had when we did the IPO. We now have a company that is twice the size, and the company is much more diversified, which is a very important indicator in terms of B2B2C because it ensures resilience. Two years ago, we had a greater exposure to a certain industry, whereas today we have doubled in size, but we have a smaller exposure to risk, and we have a comfortable cash position for us to continue to grow organically. That is a very important drive of growth.
We are persuaded that we can venture in new industries, that we can have the opportunity to allocate capital in good M&As to maintain the economy in terms of scope and to allow us to grow. Now we are going to move to the Q&A session. It may be worth reminding the attendees about how this is going to happen. Questions may be asked in writing using the Q&A button, you can raise your hand and we can open your microphone. We have Bernardo Guttmann from XP. The floor is yours. Thank you very much. Good morning, Pedro, André, Strickerr, Nicholas. I have two questions. The first one has to do with utilities. You are moving fast from a commercial point of view. You are becoming relevant for the utilities industry. What were the major lessons learned? What is the kind of acceptance of your product?
What about the user experience? Is the adoption curve in line with your expectations? In the presentation, it was very clear that this segment should begin to make a bigger contribution towards the end of this year and in 2024. What are the avenues of growth in 2024? What is the relevance of the utilities sector in terms of the delta growth? How transformational can this industry be given the size of this market, which is bigger than the telecom, actually? Thank you for your question. It's a topic that requires a lot of our energy. I'm going to tell you a little bit about what we have done and how we expect this to move forward. There are several opportunities once you start to work with customers, whether they are defaulting or non-defaulting, and you want to push them to a digital journey.
We focused initially on the purely digital channels, that is, website or the utilities app. We focused on delinquent customers. We are now starting to have some solutions for those non-delinquent customers and also other channels. For example, for utilities, you have the negotiator and the agent who, in a way, has to negotiate with delinquent customers and has to cut the power supply. We have now solutions for that as well. We have a digital solution on web, and then we have the smart POS that gives a chance to the customer to pay the account and the balance in installments, so as to avoid the cutting of power. We started with the digital part, and the adoption curve has been in line with our expectations. In those concessionaires where we operate, we can also work with different channels, and we can also offer different solutions.
We can grow in different dimensions by working with new concessionaires, so you increase your addressable market. As you implement these solutions, you grow. This is very much what we did with the telecom. We would sell a top up or digital plan. And then as we gain access to channels, we gain traction. Yes, the adoption curve is in line with our expectation. We were extremely realistic. It is a gradual process with its peculiarities. These are regulated industries. They have their own characteristics. The learning curve was very steep. Looking ahead, and of course things may change, we believe that this, in two or three years, should grow as much as our telecom payment business in Brazil. Of course, the telecom business can grow on its own. In terms of the curve, three years.
Telecom grew in eight or nine years, if you look at the history of M4U to have this kind of scale. If we can do the same in two or three years, that would be great. I think it is possible in two or three years to have this business grow. In theory, the utilities business should be greater because the total TPV is a lot bigger. I want to be realistic. It takes years to, you know, use the channels to gain the trust and so on. Omnichannel 360. We know a lot about this in telecom, but we're just starting in utilities. I just want to set your expectations in terms of timing. In 2024, we will see a growth, maybe not in absolute numbers in revenue, but in terms of the delta growth.
Thank you, Pedro. If I could follow that question up, just to make sure I understood. Is this your main growth lever today at Bemobi Brazil? It is the bigger greenfield growth leverage. Why do I say greenfield? The second biggest leverage, which is overshadowed by the migration of Oi, is that the payments business is growing. We have the negative vector of Oi, BRL 9 million year-over-year. This overshadows an organic growth that is happening. When we offset everything, you will see that the utilities are going to grow more. In terms of percentage, it's going to be huge because we start with a lower base. The telecom business in payments. When we exclude the Oi effect, the value will be bigger than utilities in the short term because the basis is bigger.
To be very honest about it and clear, the growth internationally came from Digital Subscriptions. We still have to focus on the execution for us to take some of the new solutions, especially microfinance abroad in a more consistent manner. If I had to summarize, I would say that we have three growth engines. One is utilities, which we have talked about, payments in Brazil, in telecom. We still have the impact of the Oi operation, we have international expansion, which in fact has not happened. I'm being cautiously optimistic. I think it is coming, there is a challenge in terms of execution that has to be addressed. João, would you have anything to add?
No, I totally agree with you. Totally agree. Oh, thank you. That was very clear. Thank you for your question. We have another question here, Pedro.
Came in writing about the potential of M&A, what we have seen and what has moved forward. M&A, again, is always complicated to talk about. We cannot give any guidance. What I can say, which is a bit repetitive relative to what I said in Q1. We have put a lot of energy in that. We think it is a tool to unlock value. We have a customer base in the high-end enterprise, which is huge. We've got a lot of opportunity for cross-selling and upselling, so it makes sense to make an acquisition at the right price. This increases our resilience. This strategy will not change. We are still focused on that. What has improved is that the things that make the market suffer, and we suffer as well, is a good thing for M&A.
All of you who invest in the capital markets, you know that when capital costs are high, shares go down, including ours. Also, there is a scenario of a credit crunch in Brazil given the recent developments. When you put those two things together, companies and assets that had more alternatives, they are cut off from some of these avenues, and some conversations become more rational in terms of price and valuation. Without giving you too many details, I think this is a hot topic now. Companies that we liked, but where the valuation was not convergent, these companies now are going back to the table and some things now begin to make sense from a price standpoint. For an M&A to happen, all the planets have to align.
With this cash position that we have now, we could make an intelligent allocation with a discipline relative to price. This is what we did always. We want to make deals this year, but they will happen when they can happen. Nicolas, do we have any other questions?
There is a question about microfinance, which performed well in Q1. Do we expect to see this going forward? If you could give us more details about the credit score product.
Just to remind you, what we call microfinance in practice includes two lines of business. Microfinance is an umbrella. It includes when we, in partnership with the carriers, grant microcredit or nanocredit, not in money, not in cash, but by advancing data or voice or a top-up.
We have repositioned that a little bit to focus on micro-offers because that has a higher perceived value. For example, a user may be blocked in an app, and without having to leave the app, he receives an offer to continue what he wants to do. These are micro-transactions, less than BRL 1, some cents. This is very promising, and it has driven growth in Q1. The sales cycle is long, but it can grow a lot in the next quarters. We call it connector. That is, it allows you to connect the user to what he's doing when they are temporarily disconnected. This now accounts for 80% of our business. It has existed for longer, and we see this as a new and promising business line.
The other business line did not exist two years ago, and is the credit scoring. As we gain scale, we may be able to segregate these results to allow you to follow us better. This is 20% of the value, and this is a different line. We use the data analytics where to understand the end customer of our partners, and this data allows us to predict the customer's ability or to receive money and to receive credit. We do that in partnership with our financial clients. We do a new credit scoring based on hundreds of data points which are not part of the traditional data scores. This is very useful for customers who are not in the banking system. It improves their KS, which is used for granting credit. This business today is only operational in Mexico.
It's doing well in Mexico, has been growing quarter on quarter. Our bet is that You know, it's a long process. You have to have carriers and financial partners. In Brazil, we are working on it. The first proof of concept in Brazil with an actual client and with actual data ended in Q1. It was a proof of concept that brought us very important data. Data that doesn't make much sense in other countries would allow Brazil to improve the credit analysis. Brazil is a very sophisticated country from a financial market point of view. We were surprised because the pilot project was very good. The KS was above the expectations of our partner. Now we want to put that in a commercial model and expand it to more customers. This is a very promising area.
In terms of timing, you have to be integrated with all the carriers, and this is what we have been doing. We have to have access to incremental data that we don't use today. Obviously, the sales process has to be done with pilot projects because nobody buys. This has the potential for in two years to concession of data and voice. We can have last question about our value proposition for the utilities segment. It's very simple, actually. We try to solve three issues. Two are more tactical and one is more strategic in the medium term. Our solution for payment journey addresses these three issues. The value proposition in the short term is that we try to decrease the cost of collection of utilities, especially for power, gas, water, and sewage.
One of the OpEX indicators is the cost of collection. Part of the value proposition is that when we digitize, we collect it the amount cheaper than in the stores, for example. The second part, which goes hand in hand with this, is that when we create modes of payment in installments, for example, which did not exist, or by enabling other means of payment, we decrease the number of unpaid bills. These are the short-term driver for someone to come and work with us. There is a third benefit which has a bigger impact in the medium term, and that is it is possible to create a digital relationship with the end customer. In the telecom market, carriers used to know very little about their clients, but now they know a lot about their customers.
They have segmented plans, they have offerings and things. As customers, we are very harsh with the carriers, they have become very sophisticated in terms of segmenting the market. Digitization is going to be key for power distributors. On average, they look at the meter. They don't understand what the household is like. When the digital channel is used, the distributors will have a direct relation with the clients. They can upsell, they can cross-sell, they will have access to their credit card, and so on. We believe that this sector will be more and more deregulated, and different players will be able to sell and distribute energy. This line of business will become essential for the utilities.
I think we are being successful because we linked a tactical short-term benefit in terms of the collection, the management of the delinquent clients, with a medium-term benefit, which is the direct relationship with the client. The winning utilities in five or 10 years are going to be the companies that can make this transition. All of our partners, they know that this is what they need to do. They see how the sector is evolving, and they understand the benefits in the middle and long term. My answer was a bit long, I think it's good to explain what is the solution that we provide for the short term and the benefit for the medium term.
With this, we end the Q&A session. Would you like to make closing remarks, Pedro?
Thank you, Nicholas.
I think we have to think about this first semester of the year as a transition semester. I hope we have been clear in this video conference. We want to be transparent and we want to manage expectations. This quarter had a negative impact of Oi, this overshadowed the other achievements, but we are still extremely excited and optimistic. We have made bets that are now coming to fruition, and we have to diversify our revenue stream. Oi was a very important customer. It affects our profitability, but in the second semester and next year, things are going to be different. A company has to look back, has to look to this quarter, and has to look ahead of us, and I hope we have been able to explain to you what we expect in the future. Thank you.