Welcome to Zenvia's Q2 2023 E arnings 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. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question and answer session. For the Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you do not want to open your microphone live, please write down, "No microphone," at the end of your question.
In this case, our operator will read your question aloud. Now, I would like to welcome one of our speakers for today, Mr. Cassio Bobsin, Founder, and CEO. Sir, the floor is yours.
Hello, everyone, and thank you for joining us at Zenvia's Second Quarter 2023 Earnings Call. I'm Cassio Bobsin, founder, and CEO. Thank you all for being with us today. Our results for the second quarter showed stability and consistency for Zenvia as we resolved our funding gap while managing the correct balance of revenue growth and profitability. We're making good progress integrating systems and platforms, allowing us to begin capitalizing on cross-selling opportunities, such as selling bundle packages of certain services, which is already showing positive early results. We're very excited by the ongoing evolution of our platform and its potential, and we're continuing to leverage the massive generative AI opportunity that is quickly changing our industry.
In the second quarter, we unveiled two AI- powered tools to enhance the customer journey, including Zenvia Understand, which empowers customer support representatives with easy-to-use platform that delivers an automated report with quantitative analysis of customers' interactions, and Zenvia Chatbots, which leverage AI to deliver efficient and humanized support. We are seeing every day how AI can bring transformative results to our clients. Through personalized experiences, predictive analysis, and superior customer understanding, our AI-powered solutions directly fuel our clients' businesses. We are in a new era where proactive is the new reactive, and with our SaaS platform, our clients are making customer loyalty and success a standard, not an aspiration. I'm excited to share with you our vision moving forward, which we are calling One Zenvia, and that we have been discussing internally for a while now.
One Zenvia is about creating a new world of experiences through an integrated platform, allowing us to continue our focus on capturing scenarios and improving the value proposition of our platform. The One Zenvia vision is based on uniting the three most important factors in customer experience: a fluid experience, an engaging experience, and a personal experience. We'll push fluid experiences by selling our products in a suite format, allowing our customers to pick and choose which products best fit their needs, and thereby expanding our position while operating a large volume with ease. Our existing strategy is already aligned with the suite format. We have been evolving as an integrated SaaS platform. We'll continue to build engaging experiences by leveraging AI, which, as I just explained, is rapidly changing the customer experience arena.
Not only will AI continue to enhance the customer journey, but it will also improve our internal processes, making us more efficient. Lastly, we will leverage our competitive edge, our deep understanding of customers and their behavior, to provide our clients with increasingly personalized experiences through the construction of a customer data platform or CDP. This will allow us to deepen our relationships with clients by expanding the integration of our platform with internal systems from our clients. To progress towards our vision of One Zenvia in the upcoming quarters, we're concentrating on delivering key initiatives from our strategic roadmap, including structuring projects that will accelerate product bundling and cross-selling. We are very motivated by our new focus towards One Zenvia and look forward to sharing more information with you in the coming months. Now, I'll hand over to Shay to cover our performance in the second quarter.
Thank you, Cassio. Hello, everyone, and thanks for being with us today. Let's start on slide 5. We are happy to report that in the second quarter of 2023, we focused on resolving our funding gap for the year while managing the right balance between revenue growth and profitability. In finding and operating within that balance, we were able to deliver stronger margins across business lines, which led to over 9% year-over-year growth in gross profit and an EBITDA of BRL 15 million , marking four quarters in a row of positive EBITDA. We did this despite the challenging economic environment that we continue to successfully adapt and to navigate. Total revenues dropped 5% year-over-year in the quarter as a result of our focus on maintaining a profitable CPaaS business.
However, we were able to resume sequential top-line growth, with net revenue increasing almost 8% when compared to Q1 2023. This better performance is explained by the recovery of volumes with certain large CPaaS customers, and we expect this trend to continue in the second half of the year, especially given the easier comps from lower volumes in H2 2022. The 9% increase in gross profit added nearly 6 percentage points to our adjusted gross margin, which reached 44%, attesting to our full commitment and path towards profitability. Let's take a look at our financial for the first half of 2023.
Our performance in the first half of 2023 largely reflects the same trends that we saw for the second quarter, with solid margins across business lines leading to gross profit growth of nearly 23% year-over-year, and gross margin expanding nearly 12 percentage points to 47.4%. It is important to highlight here that H1 2022 had consolidated only two months of Movidesk. EBITDA in the first half of 2023 was BRL 39 million, up from negative BRL 25 million in the first half of 2022, a delta of BRL 64 million. Our stronger EBITDA and better working capital management led to solid operating cash flow of BRL 118 million, and both were key in solving the funding gap for this year.
Let's compare the second quarter of 2023 to the first quarter of the year, which shows our progress in the first half of the year. Here on this slide, you can see that sequentially, we grew revenues by 7.7%, driven mainly by recovering profitable SMS volumes from some of our large enterprise clients. Our SaaS business, when excluding consulting to large enterprises, grew 2% quarter-over-quarter. It is always important to remind you that CPaaS is a mature business, and our strategy is to have it funding the expansion of our SaaS business. This is exactly what happened this quarter. Let's take a deeper look and examine how each of our businesses is contributing to profitability.
On this slide, you can see the breakdown of our gross profit and margin mix by SaaS and CPaaS for the second quarter of 2023, compared to the same period of last year. Second quarter was a challenging one in our SaaS business, especially related to large enterprise clients that use our consulting services. As the sales cycle is longer for these clients, we are still seeing impacts of the uncertainties we lived in the macro scenario in Brazil in the first months of the year. As the economy starts to improve, we are seeing early signs of improvement in our pipeline for large enterprise clients and expect to report better figures in the coming quarters.
In terms of profitability metrics, SaaS gross profit for the quarter went up 1.7% year-over-year to BRL 42 million from BRL 41 million, translating to a gross margin of 62.2%. When looking at the six-month figures, our SaaS gross profit went up 24.6%, mostly from revenue growth and the consolidation of Movidesk. Our CPaaS business continues to demonstrate its potential to grow with increased margin and generate cash, allowing us to invest in innovative products to escalate the SaaS business. The CPaaS business delivered a solid 18% increase in gross profit when compared to the second quarter of 2022, reaching a gross margin of 33%, up almost 8 percentage points. Let's now look at the same data, but comparing the first half of 2023 to the first half of 2022.
When we compare the first half of 2023 to the first half of 2022, we see similar trends. We can see solid performances in both businesses with increased margins, meaning that our focus on profitability is paying off. Our SaaS business reached BRL 88 million in gross profit in the first half of the year, a 25% increase compared to the first half of 2022, and reaching a gross margin of 65%, which implies a 3 percentage point expansion compared to the first half of 2022. CPaaS, in turn, delivered a solid 21% increase in gross profit when compared to the first half of 2022, reaching a gross margin of 37%, up roughly 12 percentage points. Let's now look at this data in terms of weighing our financial metrics.
Our SaaS business continues to gain momentum in annual recurring revenue, totaling almost BRL 240 million . As I mentioned previously, the challenging environment negatively impacted our net revenue expansion, which totaled 116% compared to 120% in Q2 2022. Our SaaS services represented 35% of the total revenue, as we had a boost in CPaaS revenues. In terms of gross profit, we had a 50/50 split this quarter. Let's now move to the next slide on our EBITDA evolution. As you can see in this slide, sequentially, our EBITDA declined to BRL 15 million from BRL 24 million in Q1.
While we expected some increase in infrastructure costs related to renewed suppliers' contracts, the higher mix of CPaaS in revenues, combined with non-recurring costs related to severance costs and slightly higher provisions, led to some pressure in EBITDA this quarter. Despite that, we delivered a solid BRL 39 million EBITDA in the first half of the year. Moreover, as you can see in the next slide, we have now delivered four consecutive quarters with EBITDA in positive territory. This is a direct result of the decision to pivot Zenvia into a SaaS company and focus on improving profitability. It has not been easy, particularly given the complex macro environment, but as you can see, our strategy is paying off. Our trailing 12 months EBITDA is totaling BRL 72 million , which makes us confident in reiterating our EBITDA guidance range for this year.
We got to the most important slide of this quarter, as it shows that we have been able to convert EBITDA into cash and solve our funding gap for 2023. This is an important milestone for us that attests to all the hard work of our humans with Z to grow profitability and a lot of other initiatives we undertook to close the gap, coupled with extended earn-out payments and stricter treasury policies. While EBITDA minus CapEx was already enough to generate a positive BRL 13.6 million , total operating cash flow reached BRL 118 million as a result of better working capital management, especially due to higher anticipation from clients and renegotiation with SMS providers to more flexible payment terms.
This working capital improvement and strong operating cash flow allow us to pay down debt and solve our funding effort for 2023, putting us in a better position to continue deleveraging balance sheet and invest in new projects. To finish, I would just like to reiterate the guidance we previously set for 2023. On the revenue side, we are aiming at the low end of the guidance, while for EBITDA, we are confident to deliver close to the top end of the range. Given the positive trend we are seeing, we are confident in our ability to deliver the solid EBITDA in 2023, which puts us on track to deliver the 15% EBITDA margin mid to long-term level we presented during our 2022 Investor Day. With this, we conclude our prepared remarks, and we are ready to take your questions.
We will now begin the question and answer session. Once again, for this Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down "no microphone" at the end of your question, and our operator will read your question aloud. Our first question comes from Lucas Chaves, Analyst at UBS BB. We are now opening the audio so that you can ask your question live. Please go ahead.
Just saying, Lucas from UBS BB here. Two things, two questions from our side: How should we just see the focus on large clients going to the second half of the year? At the time, how do you see, especially the consulting part of large- of enterprises, and how do you see these large clients impacting on margins on the second half? Thank you very much.
Thank you, Lucas, for the question. We always keep a very strong profile of large customers, and we are seeing that although we have macro environment, a market environment that is not like, pushing growth as a trend, we're able to bring new projects to these customers. Hence we expect to grow on the large customers, even though the margins on large customers are not as high as the margins from small customers. That's why we counterbalance growth on large customers with continuous growth of the long tail base, which brings margins which kind of balance this margin profile, so can get the best of both.
'Cause large customers bring lots of revenue and, the, and small customers, not so much of revenue, but they counterbalance margins, getting us a better profile. We are seeing these large customers getting more adoption of the whole portfolio that we launched in the last couple quarters through acquisitions and R&D. Coming from a, a, a higher presence of CPaaS on large customers, we're now getting more presence of our SaaS solutions on these large customers, which we expect on the next couple quarters to increase margins for large customers overall.
That's why I've been investing into integrating these SaaS solutions into the whole on the core of the platform, so we can migrate customers from pure channel usage coming from CPaaS to a more software-based usage of our platform, which of course, brings us the SaaS kind SaaS margins that we have, which of course, is good for for for the whole picture, and especially by creating more lock-in for these large customers. As we go into more deep adoption of our platform, we're able to not only get revenues, but also sustain those margins over time.
That is very clear. Many thanks.
Let me get some questions here from, from the system. Can you comment more on the CPaaS competitive environment, and if the improvement is sustainable moving forwards?
Sure. We see that CPaaS industry and CPaaS end market is a more competitive market than SaaS, but as we have a very strong position on the original market, this is bringing us lots of strength to compete better than our than other players in the market, especially global companies that try to address the same opportunity. As we've became over time, the market leaders on that space, we are now leveraging that position and making that pace of growth that we're able to track over the course of this year to be sustainable over the mid to long term, as we're able to achieve better negotiations with carriers, which brings us a cost advantage.
Hence we are able to position ourselves with, especially with big customers, with the large purchases of messaging on the market, we're able to position ourselves as a company that is better, like, that is able to achieve a better pricing framework in order to capture the majority of this demand. We expect this to continue going forward.
Thanks, Cassio. one, easy one for you, Cassio. What do you see the company stock looking like in five years?
I'm not sure what I would be able to tell on that sense. I don't have, I don't have my, my lawyer by my side, but as we've been working as, to build a long-term vision, we are starting to get the first benefits of this movement of building a very strong SaaS layer, comprised of solutions from different parts of the customer journey that are now being integrated. We're starting to get lots of traction on the cross-sell and the bundling of the solutions. In the next couple quarters, we're gonna see the effects of that.
As we capture these all those investments in the last two, three years, I would say beginning like Q3, Q4 this year, but fully on 2024 and on, we expect that the next five years would look awesome on that aspect of getting all the results of this strategy, which is a long-term strategy that will become very clear for the market, that we are building Zenvia to become the leader in customer experiences software. That's why we understand that there's a very good opportunity for long-term investors to catch that over time.
Another one here. Congrats on solving the funding gap for 2023. How do you see this moving on for 2024? As we've been working hard to deliver strong EBITDA and cash flow, it puts us in a better situation than we were a couple of months ago when negotiating with banks and funding alternatives. We are very confident that by continuing to deliver these strong results, we'll be able to solve the funding gap, not only for 2024, but the entire funding gap of the company, mainly arising from the earn-out structure that we have. We are confident that we will, we will come up with good news for all stakeholders on this front.
As of now, we feel that we are in a much better situation than, than we were a couple of months ago.
Again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down, and we'll open your microphone. If you prefer not to open your microphone, please write down "No microphone" at the end of your question, and our operator will read your question aloud.
I'll, I'll continue here. In order to meet the 2022 revenue guidance, you would need relatively high revenue growth in H2. How is your visibility on achieving this? Caio, do you want to take this?
Yes, of course, of course. As I said, we are aiming on the low part of the guidance for revenue. For CPaaS business, we have a seasonality of the business. In Q4, we have a strong revenue due to Black Friday and Christmas, so that give us more room for growth in the second half of the year, so that's why you're gonna see a strong growth when comparing to the first half. For SaaS business, we, as also Shay already said, we already seen the pipeline for large enterprise getting stronger. Also, you can see on our results, our number of clients for SaaS start to strong, had a strong growth.
As we start small in their business and, and we have a strong revenue expansion, we, we are confident that we can deliver the growth that we need in order to reach the low part of the guidance in terms of revenue.
Thanks, Caio. Cassio, can you give more color on the One Zenvia that you highlighted in your opening remarks?
Sure. What we've been doing the last, I'll say, strategically looking at the past, three years, is building our SaaS layer. That movement was a combination of a stronger investment on R&D and also some acquisitions that we did on companies that had complementary, SaaS offerings that is, that are now part of our portfolio. Of course, doing so, created a certain complexity in terms of how we offer those products to our customers and how we operate the company internally. Part of the integration process that we've been doing in the last couple of quarters, started with the corporate infrastructure and the organizational chart, and basic process integration, and which are pretty much concluded. Now we're beginning to combine all these products into a single suite.
That's what we are aiming at, to provide over the next couple quarters. That's doing, that's, that's being, we've been working on that to make it available on Q1, on Q2 next year. Part of that is what we calling One Zenvia, and it considers all of the projects that are being executed to make that happen. That's a combination of integration of corporate systems, integration of the billing systems, integration of the products, user interface and user experience, unification of business models. Everything that we've been working on in the last couple quarters, and we'll continue so in the next couple months, so we're able to deliver that a unified offer for our customers.
We are calling that movement of doing all this execution, be synchronized internally, so we can provide value for our customers in a way that makes a lot of effect, a lot of impact on the market, being almost pretty much a unique offering for customers in the region. We are calling that movement One Zenvia. It's a combination of, of these projects being executed to provide a unified platform for our customers.
Can you comment on how is the large corporate interest on AI-driven solution evolving? Are they demanding more solutions that are AI-based? How does this impact your pricing strategy?
Yeah, sure. We have seen a lot of demand from companies to, first, it's more of a broad search for how they can use generative AI on their processes. What we launched in the last couple of months are different features that boost these companies' productivity, especially from sales agents or customer service agents, to have, like, pre-written responses to their customers, based on customer history and the kind of demand, that kind of inquiry coming from the end customers.
This is already available on our products, and we're evolving some, also around, understanding what are the customer's expectations, combining not only what the customer is saying, but also the behavior of the customer around these communications and other data sources that we have access from this company. We're providing these as combined insights based on this customer history. We are seeing... Now we have all these customers testing, and some of them going into prediction on these features that use AI.
In terms of how we monetize that, we are seeing that although some companies are building some extra layers of charging customers for that, we're seeing that instead of building specific modules for AI, we're putting AI in the core of the platform. This will be part of all of our customers will have access to these features over time, as we are rolling, we are rolling that out for all the customers. As we consider this, this will be something that will be like a basic requirement for companies that are looking for software that will improve their sales or improve their customer service.
That's why we're merging all these initiatives into the core of our SaaS offerings, instead of trying to make that accessible to just one or two customers, we're making that available at the core. We expect this to differentiate the whole platform, considering that most competitors are still not doing that kind of approach. They're mostly testing. We're already into prediction and making that available to all of our customers.
Another one here. Can you comment on the difference between acquiring new clients in SaaS and the revenue that didn't grow in the same pace? Caio?
Yes, of course. What we saw is a strong growth in number of clients, especially when it comes to our solution traction, and also we can see strong growth on conversion and service. As we said, we start small in a small use cases, especially in the client. When they see result, we start to grow with more use cases or more seats, and that's why our net revenue expansion for the clients that are longer than 12 months is close to 120%. As we see the clients start to use our solutions, then they learn. We help them learn, we help them using more use case inside their business, so they start to grow revenue. That's why we see first the number of clients growing, then the revenue will keep the pace up for the next quarters.
Can you comment the risk of the listing from Nasdaq due to the deficiency on minimum bid price? Are you confident you will revert it? Yes, we are confident we'll be able to revert it without needing any technical solution. It's on us to continue delivering strong results. It's on us to be able to solve the funding gap once and for all, and, and, and, and that, in our opinion, will be the most important single catalyst for share price. We are confident we'll be able to, to, to, to revert it without the need of any technical solutions such as reverse splits. Those are the questions we have here. Hugo, can you report to see if there are any further questions?
Again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down, and we'll open your microphone. If you prefer not to open your microphone, please write down, "No microphone," at the end of your question, and our operator will read your question aloud. Please, do you have any further questions? Hi, there's a question here by Gabriel Carbonelli Meneses. Can you please read?
There are BRL 94 million on bank debt to be paid in one year, plus BRL 150 of advance of clients, plus BRL 122 million of earn-outs to be paid, with only BRL 142 on cash and BRL 27 of adjusted EBITDA. How do you plan to solve the one year funding gap? So again, the BRL 150 you see advances from clients is that contracts we have with the contract of rent, special habit to iFood. That contract is in final stages of renegotiation for 24 months, which will put us in a very good situation of only needing to pay when we are generating enough cash for that. Our EBITDA...
I, I, I'm not sure that I agree with you, Gabriel, on the BRL 27 million adjusted, because this year is going to be between BRL 70 million-BRL 90 million. Next year is going to be probably BRL 120 million-BRL 130 million. We are confident with that. Obviously, by generating enough cash and where we are with EBITDA now, it puts us in a good situation discussing with the banks for rolling the debt for longer term and longer structure that will ease the payments in the next 24-36 months. We are able to to pay all those liabilities when the company is generating higher EBITDA and and obviously more, more cash.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Cassio Bobsin for his closing remarks.
Thank you very much, everybody, for joining this call. We're very excited with the year, you know, going forward, especially that we are aiming to achieve our guidance for the year. Not only that, but looking into the future, we are very happy with the path that we have and the opportunity that we have, and to become a very unique offering for our customers by providing a unified suite of customer experience SaaS, which will become a very strong competitor in the field by bringing lots of value for customers and connecting all the dots along the journey. That's our purpose, that's what we're building for the future, and we are very happy to be on track of that. Thank you very much, and see you next time.
The conference has now concluded. Zenvia's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect. Have a nice day!