[Call Starts Abruptly] 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.

[Operator Instructions] Now, I'd like to welcome one of your speakers for today, Mr. Cassio Bobsin, Founder and CEO. Sir, the floors the floor is yours..

Hello, everyone, and thank you for joining us at Zenvia’s Q1 ‘23 Earnings Call. I'm Cassio Bobsin, Founder and CEO. Thank you all for being with us today. Our results for the first quarter showed growing momentum for Zenvia, as we continue to focus on profitability.

Three out of the four companies we acquired in the last couple of years are fully integrated from an organizational structure perspective, and we are advancing on the integration of its systems and platforms, which will allow our SaaS business to fully capture synergies and benefit from one single platform.

Customers are beginning to realize the competitive advantages of our unified CX SaaS platform to transform their customer journeys into digital.

We are very excited with the continuous evolution of our Quantum platform and its solutions, that are now starting to leverage the massive generative AI opportunity, mostly from LLMs such as ChatGPT, that would clearly benefit companies' productivity and customer experiences overall.

On the CPaaS business, we saw a recovery of volumes mailing from large clients with sustained margins, attesting to our ability to execute on this mature business and demonstrating its potential to generate cash, which is instrumental to fund the expansion of our SaaS business.

Our focus moving forward will remain on profitability and capturing cross-selling opportunities. I'll hand the call over to Shay to go into more detail on our performance. I'll be back after that for the Q&A..

Thank you, Cassio. Hello, everyone and thanks for being with us today. Let's start on Slide 5. In this first quarter of ‘23, we remained focused on our strategy to improve profitability, while executing on our savings plan implemented since the third quarter of last year, all in the face of a challenging economic environment.

As we did in Q4 ‘22, we continued to operate in Q1 ‘23 with the correct balance between revenue growth and profitability, which coupled with cost efficiencies led to an EBITDA of BRL24 million, making three quarters in a row of positive EBITDA.

Also, it's important to highlight the very strong cash generation as a result of a strict working capital management and again, we did this despite the challenging and more competitive environment that we continue to successfully navigate.

Even though our total revenues dropped 9% year-over-year, as a result of our focus in a profitable CPaaS business, the SaaS business continues to be our growth engine, with a top line pro forma expansion when excluding the consulting business of 32%, when comparing Q1 ‘23 to Q1 ‘22.

Our gross profit grew by 38%, adding 18 percentage points to our adjusted gross margin that reached 52%, which attests our full commitment and path towards profitability. Let's take a look at how each of our businesses is contributing to profitability.

Here on Slide 6, you can see the breakdown of our gross profit and margin mix by SaaS and CPaaS for the first quarter of ‘23 compared to the same period of last year. We can see good performances in both business, with increased margins, which means that our focus on profitability is paying-off.

Our SaaS business reached the mark of BRL46.4 million in gross profit this quarter, a nearly 40% increase compared to the first quarter of ‘22, reaching a gross margin of 68%, up 4 percentage points compared to the first quarter of ‘22.

The CPaaS in turn delivered a solid 38% increase in gross profit when compared to the first quarter of ‘22, reaching a gross margin of 42%, up almost 19 percentage points. Let's now look at this data in terms of weight in our financial metrics.

We're well on our way towards transforming Zenvia into a full SaaS company, and we continue to gain momentum on this front. Our SaaS business reached an annual recurring revenue of BRL59 million in this first quarter, which annualized totals almost BRL240 million. Net revenue expansion in the SaaS business remained healthy at above the 120% level.

Our SaaS services represented 38% of the total revenue in terms of gross profit, and we had a 50/50 result this quarter. We continue to explore the possibilities of generative AI to enhance our SaaS solutions portfolio, building off the integration of ChatGPT with Zenvia Attraction, which we announced in February.

In March, we hosted our first ever Hack-a-Bot, an internal hackathon for humans to develop solutions for the end customer based on the ChatGPT 3.5 tool.

The solutions developed during the Hack-a-Bot are already being tested for potential integration with our suite of CX solutions, with developments including improved context analysis of the conversation, grammar evaluation and customer sentiment analysis.

And earlier this month, we announced the integration of ChatGPT into Zenvia's chatbot, which can now be trained to search through and reuse documents already created within the company, enabling a wider variety of questions to have automated answers and opening many more doors for the future of the tool.

This integrated chatbot is already in use by a major Brazilian insurance company. Let’s now move to the next slide on gross margins. On this slide, we can see the evolution of our gross margin from the first quarter of ‘21 and until today. We keep delivering on the promises made during our IPO.

We continue to expand our margins and have shown a 19 percentage points expansion from the IPO in Q2 of ‘21 through the first quarter, and a 18 percentage points expansion compared to the same quarter last year. We reached a gross margin of 52% in Q1, with our consistent results proving that we are walking the talk on our path to profitability.

Looking ahead, it is worth noting here that we do not expect the gross profit for the full year to remain in the same level that we had in Q1. As for our guidance for the year, our gross margin should remain at a similar level compared to ‘22. Moving on to the next slide.

On this slide, we detail the progress towards cost reduction initiatives, which we started implementing in third quarter last year.

Following the downsizing of our corporate structure in the fourth quarter, combined with reducing non-personnel G&A expenses such as consulting and travel, we recorded a 9.5% reduction in G&A expenses compared to the first quarter of ‘22, reaching just over BRL31 million compared with almost BRL35 million in the same quarter last year.

On the graph to the right, we can also see the sequential improvement in our cost reduction efforts in terms of percentage of net revenue. We made good progress in Q1, thanks to our savings plan and restructuring, but it doesn’t really reflect all impacts yet.

We expect an acceleration in the capture of savings in the following quarters, leading to a lower ratio of expenses as a percentage of revenues. Let’s move to the next slide.

In this slide we detail our EBITDA growth since the first quarter of ‘22, which is a direct result of the decision to pivot Zenvia into a SaaS company and bringing our performance back to the profitability path. It has not been easy, especially given the complex macro environment, but as you can see, our focus on profitability is paying off.

So, EBITDA in Q1 ’23 (ph) was a solid BRL24 million compared to a negative BRL8 million in Q1 ‘22 and positive BRL23 million last quarter. This puts us on track to deliver on the top range of the guidance for the year.

Zenvia’s history of delivering profitable operations makes us confident in our capacity to deliver a solid EBITDA expansion in ’23, as we will discuss in a minute. Let’s move to the next slide. This slide is very important to us, as it shows that we have been able to convert EBITDA into cash.

While EBITDA minus CapEx was already enough to generate a positive BRL13 million, total operating cash flow reached BRL95 million this quarter. This is a result of better working capital management, especially due to higher anticipations from clients and renegotiations with SMS providers to more flexible payment terms.

This working capital improvement, coupled with the extended earn-out payments, is enabling us to pay down debt and reduce our funding gap for ’22 (ph).

I acknowledge we said in the last two conference calls that we are working on a solution for our funding gap for the first half of this year and we are indeed, but this solid working capital is actually enabling us to gain time and negotiate better transaction for all stakeholders.

We would like to emphasize that we don’t see any additional difficulties, we are still working on options, that include debt, equity and among others, but we are also in a better position given how we have been managing our cash flow.

To finish, we have already discussed this in our last earnings call, but I would just like to emphasize our EBITDA guidance for ‘23 of between BRL70 million and BRL90 million.

Given the EBITDA numbers we delivered in both Q4 ‘22 and Q1 ‘23 of BRL23 million and BRL24 million, respectively, we are confident in our ability to deliver this solid EBITDA in ‘23, which is putting us on track to deliver the 15% EBITDA margin mid to long-term level we presented in our ‘22 Investor Day.

With this, we conclude our prepared remarks, and we are ready to take your questions..

We will begin the question-and-answer session. [Operator Instructions] Our first question comes from Marco Nardini, sell-side analyst from XP. Marco, we are now opening the audio so that you can ask your question live. Please go ahead..

Hello. Good morning. Thank you for taking my question. I actually have two here on my side. The first one is a quick follow-up regarding the top line dynamics on CPaaS. When do you expect to report top line growth in this quarter together with this positive trend that you have on adjusted gross margin.

And can you also give us a little bit more color on the competition this first quarter, please? And the second one is regarding the quarter-over-quarter drop in adjusted gross margin in the SaaS business and increasing the down sell. Should we see more margin drop in this segments for the year? Thank you..

I'll start with the competitive dynamics and overall understanding of how things are doing on the CPaaS, and then Shay, I can complement on the numbers.

So we're looking at Q1, and we are observing up last predatory competition, which it means less subsidizing on pricing amongst competitors on the space, which is helping us since Q4 to reach better margins.

We've been working very hard into eliminating any kind of negotiation that could damage our gross margins, in that sense, hence we had a bit after decrease on the revenues as we shift the stocks to achieving profitability with each customer, especially the big ones.

And we expect as we are being serving these dynamics to get back to our profile of growth in terms of volumes that translates revenues. Hence, we don't imagine that we're going to be able to keep the same gross margins as we go into a higher volumes, which means higher revenues.

So there's this kind of balance between growing and space with customers that have that bring a bit less I mean, less margins that will kind of achieve margins a bit lower that's why we project over the year not to get the same kind of level in the gross margins, but trying to reach the revenue growth that we expect to.

Now I think you guys can complement me on the numbers..

Yes, Cassio. Still regarding CPaaS, what we can expect is because we lost some of volume as Cassio said, second half of 2022. We expect a growth on this business line on the second half of the year when you compare to 2022.

Talking about SaaS, the quarter-over-quarter performance was in fact especially including the consulting part of the business because it's related to the large client and the pipeline in Q4 or due to the macroeconomic environment didn't perform as we expected, the sales cycles are longer due to the size of the client.

But we already seen on Q1, this pipeline better performing, so better performance. So for the rest of the year, we expect the recover for this specific business line that is focused on large clients. And also regarding the gross margin that you saw quarter-over-quarter decline, it's a revenue mix.

There's not some loss of profitability in fast and we are in line with our guidance. So no words here. I don't know, Shay, if you want to counter..

No. That's it..

Perfect, guys. Thank you..

[Operator Instructions]..

Eric, I have a couple of questions here. Let me start with them on the web and… So first question on funding gap here.

Still have some payments on the earn-outs until the end of ’26, with this profitability improvement, how are you looking into this? Do you wish to plan -- do you plan to issue more debt? So the question here is, we acknowledge that there is still funding gap, not only for some funding gap for this year, but probably until the end of next year.

As of second half of ‘24 and first half of ‘25, we believe that our cash generation will be enough to pay for the for the earn-outs that that we have out there.

So we are, as we mentioned in our prepared remarks, we are working hard and taking advantage of the very strong working capital management that we've been doing that is buying us time to find the best solution for us to solve the short-term and medium-term funding gap.

Second question here is, could you please enter in more detail regarding working capital, we saw in the quarter. How should we look at these numbers going forward? So we've been working very hard to change the way we look.

We always looked into working capital and these are the positives of going through all difficulties that tech companies have been going with good access to funding. So we've been improving a lot our processes focusing on both DSO and DPO.

And this, specifically, we entered with the Twilio into a working capital transaction last in the -- in Q3 of ‘22 in which Twilio is anticipating us some couple of months in revenue, so paying in advance. This provides us with very good working capital and obviously more financial flexibility.

We've been rolling this and we believe that we'll keep rolling this and kicking the can down the road. So you should -- you shouldn't expect any outflows out of this working capital, so we should continue at healthy levels.

And on the other side, we've been negotiating in -- with providers, we created more recently a procurement team that is negotiate -- renegotiate with all suppliers that we have, including SMS providers, and we've been at -- we've been very successful in managing better our DPO and this is behind.

So this business is usually not a business with intensive in working capital. But in any ways, we are continue to work and we should expect working capital to continue helping us positively going forward, but obviously not in the same magnitude that we saw in in this quarter. Let me see what I also have here. Two questions regarding AI.

Do you see the investments in AI, GPT for powered features impacting our margin profitability in the near term? Do you expect ChatGPT AI related features to drive higher messaging volumes accelerating in the CPaaS revenue stream? Cassio, I guess, you can talk about AI and how you see this impacting us?.

Sure. We've been applying a [indiscernible] such as ChatGPT into the product in different parts of the product. And these are usually put to accelerate the usability and productivity of both managers that are using software or even sales reps or customer service agents that will get most on productivity.

We expect that to be a scale across the next couple of quarters. It's yet -- it's a little bit soon to understand what will be, like, to reel the facts on that as we are not yet into a scale kind of phase, so we can really measure with working in some mostly with beta phase for some customers on these different features.

And we don't see, like, a really impacting near term change and the margins. We do expect that over time that will bring lots of interest in the usage, especially on the automation side of our platform, which helps companies to reduce costs and bring more efficiency, which, of course, everybody is looking for that in their operations.

Hence, we expect this to drive more adoption, especially going deeper into using our different features set of the platform.

And looking at the CPaaS space, of course, as we go into automation and when we reduce costs for companies and they're able to leverage more scale, although, it's not yet possible to measure that impact, that's something that we expect in the mid to long-term.

That's why we're betting that these -- all these evolution in the AI space, especially on [indiscernible] would will bring for us a company that is focused on CX, a lots of distant levers to hold in order to bring more customers, more adoption, and more efficiency when using our platform to improve customer experiences..

Thanks, Cassio. Another one here. What is the organic growth of SaaS for this quarter? Caio, I think you can take that..

Yes. Excluding the consulting part of the SaaS unit, as I said earlier, that impact in Q1, what we see in the other business lines is over 30% pro forma basis growth.

So still in the 30% growth on a pro forma basis, excluding again the consuming part of this that was impacted due to the pipeline or as I said earlier, but we are already seeing a better pipeline performance in Q1, but the sales cycle is longer. So that's the impact..

What is the average financing cost of working capital financing? Our most of the revenue anticipation transaction is about 12% a year. So is considerably cheaper than our bank loans, which are approximately CDI plus 6%, which is now close to 20% a year. So the working capital financing is really attractive in terms of cost to us.

And what is the annualized interest cost post Q1 with better financing option? Look, we'll continue to spend about and to your next question here trying to get a sense of free cash flow estimation ‘23.

So we -- let's start with EBITDA and help you guys navigate through ‘23 expectations, right? So we guided for EBITDA of BRL70 million to BRL90 million. Let's use the top end of the range, which is BRL90 million given that, in the last two quarters, we delivered close to ‘24 (ph). So it's better to look from a from a top end of the range.

So assuming EBITDA of BRL90 million for this year, we'll have to pay approximately BRL40 million in CapEx and then we'll have given or take BRL40 million, BRL45 million in cost, in financing cost. So that gives you a sense of our free cash flow, BRL90 million in EBITDA, BRL40 million in CapEx, and BRL40 million, BRL45 million in finance costs.

I'll keep going here. On SG&A, you said you still have to capture -- what level should we expect going forward compared to this almost 18% you had in Q1. I guess, Caio, you can help us here..

Yes, because of the growth of the revenue, the amount of -- we don't expect the growth as in terms of amount of expenses, but in terms of growth ahead of the revenue, we expect to be around 40% of the net revenue to G&A expenses..

Thank you, Caio. I have one more here. Guidance for the year especially EBITDA feels low or conservative compared to Q1. Can you elaborate on that? So when looking to EBITDA trailing 12 months, so we are close to BRL55 million that compares to our guidance of BRL70 million to BRL90 million.

Obviously, if we annualize both Q4 or Q1, we are tracking at probably closer to a BRL100 million in EBITDA. So we are very confident that we will be delivering the BRL70 million to BRL90 million, which is the guidance and probably, and as all management should aim. We'll continue trying to do better than what we guided.

But it's still too early in the year, right? Only one quarter, so at this time, we reiterate our guidance. But again, I would like to emphasize that we work very hard to continue with the same level of EBITDA that we deliver in the past two quarters and deliver more than the guidance if it's the case. And those are the questions here, Eric.

Can you just report to see, if anyone has additional questions?.

Perfect. [Operator Instructions].

So there's one more question here, Eric. What is hindering you guys from doing a pro rata increase for all investors. So as we've been saying, right, we are not excluding any alternative to help us with the funding gap.

We are working with all options that we have including debt, including equity, all of them, all alternatives have their own process and timings. And we are working with them to with all these options to come up with the best solutions for all stakeholders.

So, again, the good working capital management and the strong cash flow that we generate this quarter buys us times -- time to evaluate the best alternatives at the shorter period of time possible. And Eric, I guess that's it..

Yes. This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Cassio Bobsin for his closing remarks..

Thank you very much everybody for joining our conference call. We are very excited with the results that have been delivering and looking at the year ahead, we still got a lots to happen, and we're very happy to be on track with our guidance and we expect to have some more good news on the next couple of quarters, so see you guys next time.

Thank you..

Perfect. So the conference has now been 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 and have a nice day..