Totvs SA

BOVESPA:TOTS3

Earnings Call Transcript 2023-Q1

[Sergio Pauperio Filho, executive]

Good morning to all, and thanks for attending this conference call. I am Sergio Serio, Head of IR. And today with me are Dennis, our CEO, Maia, CFO; and Tubino, VP of New Business and CEO of RD Station. As we usually do, we are going to present the highlights, and then we will move on to the Q&A session. [Operator Instructions]

Before proceeding, we would like to clarify that any forward-looking statements that may be made during the video conference relating to the business outlook, projections, operating and financial targets are based on the beliefs and assumptions on the part of the company's management and on information currently available. Forward-looking statements are no guarantee of performance as they involve risks, uncertainties and assumptions, which have to do with future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, other operating factors may affect the future performance of TOTVS, and conduct to results which differ materially from those expressed in such forward-looking statements. I now turn the floor over to Dennis and he's going to talk about Slide 3.

[Dennis Herszkowicz, executive]

Thank you, Sergio. Good morning to all who are attending this video conference. I would like to start by thanking our associates, their families, the thousands of clients and millions of users throughout Brazil and Latin America. Once more, they have engaged in our journey to build and strengthen our 3D ecosystem, which is interconnected and interdependent. Together, we started 2023 with the same focus and the termination we showed in 2022. We have become the trusted adviser of our clients by bringing a value proposition to improve the results of companies through innovation and technology. Every quarter, we had more and more towards that direction. This quarter was no different. We saw important achievements and new records. And as you can see on Slide 3, we have maintained the balance of our dual mandate. Growth of revenue driven by SaaS management, which accounted for half the growth year-on-year of the revenue and by business performance.

On the other hand, profitability, our adjusted EBITDA margin for management and business performance partly increased beyond the consolidated margin. In terms of growth, as you can see on Slide 5, consolidated net revenue was in excess of BRL 1.1 billion, an 18% increase relative to the same period last year. This was possible because of the achievements in all the 3 dimensions of business, and I would like to highlight the 33% growth in revenue of SaaS management, 32% of the revenue in business performance and 16% of the revenue of Techfin. These 3 revenue streams drive the total growth of TOTVS and account for more than 67% of the growth of consolidated net revenue in the quarter. Also, the consolidated ARR, as you can see on the right hand of the slide is to be highlighted. Despite a weaker quarter and normal fluctuations in the short term in the renewal rate, especially in an operation that focuses on large accounts like Dimensa, our sales force showed its strength.

At the end of the quarter, we had a consolidated organic net addition of BRL 185 million. And the volume component increased its share. That is the signings of new clients together with cross and upselling to the clients of our base continues to be strong and moving forward. We also have record levels of NPS, the expansion of the solution portfolio, migrations of clients to the cloud, productivity and efficiency in commercial distribution reduction of TCO for the client and others. Moving on to Slide 6. In terms of profitability, I would like to highlight the increase of the adjusted EBITDA margin on a consolidated basis. This was in excess of BRL 1 billion in the last 12 months. This substantial result was driven by the adjusted EBITDA margin of management and business performance, which was 26%, 170 basis points above Q1 2022 and 310 basis points above Q4. This shows the excellence of our operations and the healthiness of the recurrency model.

Then on the right-hand side of the slide, cash earnings ended at 25% because of the higher rates for interest on equity capital and for financial losses of BRL 20 million in fixed income funds, which had less than 1% of its equity invested in debt -- in debt bonds of Americanas. These impacts were partially offset by the 13% growth in adjusted EBITDA. Year-on-year, there was a 9.4% in terms of cash earnings. And this would be 26% if we excluded the negative impact of financial investments. That is, it would be in line with the behavior of EBITDA in the period. These results place TOTVS in a unique position when compared to any other technology operation and allow us to continue to invest in building the competitive advantages that we have even in a more challenging scenario. Now I turn the floor over to Tubino to speak about the results of business performance on Slide 8.

[Juliano Tubino, executive]

Thank you, Dennis, and good morning to all. In March, we moved forward in terms of building the 3D ecosystem by having RD Station as the core of the business performance of TOTVS. All the operations of e-commerce, sale and all the other offerings were consolidated under RD station. This together with all the changes that had been planned, lead us towards greater integration, not only within the dimension of business performance, but with the other dimensions as well. This came together with one of the most important changes in my career as an executive because I became not only Vice Presidents of new business, but also I became CEO of RD Station. Eric Santos, the Founder of RD Station, became the Executive Chair of the Board of RD Station and he's going to focus on strategic projects and on developing the ecosystem of partners and clients. In terms of the results of the quarter, the dimension continued to grow very strongly and net revenue increased 32% year-on-year.

Quarter-on-quarter, revenue grew 3.7%. And mind you, there is a favorable seasonality in terms of ARR in Q4 in business performance. The net addition of BRL 21 million in the quarter took the ARR to EUR 374 million in Q4, as you can see in the center of the slide. This performance in terms of the addition of ARR reflects the strategy of multi-products of RD Station, which accelerates cross and upselling with a special focus on CRM and a solution for conversational commerce, which has been performing much above what we expected. Also the launch of the advanced version of our station, which delivers innovation to more sophisticated clients and a higher volume of transactions. 27% of the revenue of RD station is coming now from multiproduct clients, that is those who use in their operations to or more products of the portfolio. Also in terms of GMV, gross merchandise volume under the digital commerce offering, this continued to grow and has achieved BRL 137 million in the quarter, 85% above Q1 2022.

In terms of digital commerce, we announced yesterday, the partnership between RD Station and Shopify the leading technology e-commerce company for small and medium-sized companies. Shopify is one more leader that we bring in to help us build the biggest and most complete ecosystem of business performance in Brazil. This will be a complete portfolio, focusing on the digitization of the sales funnel of the clients, which is essential for e-commerce. The integration of Shopify in the products and with the ecosystem of RD, in terms of business deals and things and other is essential to serve small and medium-sized companies. This will help us solve problems for a very fragmented market. We are leaders in terms of automation of marketing with thousands of clients and agencies.

And with our alliance with Shopify, a leading e-commerce platform, we will build a complete portfolio that we will like TOTVS to lead e-commerce with small- and medium-sized companies. Now the contribution margin on net revenue reached 49.1%. This is an increase of 140 basis points when compared to the same quarter last year. As mentioned in the last quarter, despite being a young business dimension and currently focused on revenue growth, this is a profitable operation with operational leverage as one of the strong characteristic of its SaaS model, which reinforces the high potential for value generation. Despite this current growth mandate, profitability will continue not being a dilemma for TOTVS. I will now turn it over to Maio so he can talk about management starting on Slide 10. Maia.

[Gilsomar Sebastião, executive]

Thank you, Torino. The management dimension is following its balanced trajectory of growth and profitability. The net Revenue grew 17% year-on-year, again driven by a 20% growth of recurring revenue and by the increase of the corporate model licenses. The main driver of recurring revenue growth continues to be SaaS revenue. This grew 33% in the period with a 29% increase in new signings, which set a new record for a first quarter of new sales and a 41% growth in cloud. As in previous quarters, the good performance of new signings has is one of the main reasons the consistent evolution of the quality perception by customers, which is reflected in the Net Promoter Score, which once again reached new records. This NPS behavior, the expansion of the portfolio, the drop of the TCO contributed to generating new sales lead and consequently the volume component and the addition of annualized recurring revenue, ARR.

As shown in the chart in the certain of the slide, the net addition of ARR totaled BRL 164 million during the Q, excluding the seasonal effects of the corporate model, the reduction in organic ARR well this win to BRL 168 million in Q4 to BRL 130 million on Q1 this year. This lower net additional of ARR even with the growth of new signings mentioned earlier was mainly due to the combination of some factors. The strong and expected decrease in the price component we translated the readjustment of recurring contracts, approximately 55% lower than Q1 2022 and 40% lower than Q4. 2, the renewal rate, we ended the quarter at 98%, slightly below the average of past years and mainly connected to the renewal of dementia contracts, which differently from other management operations is more concentrated in a little more than 100 large accounts in the financial market, which may generate greater volatility within its quarterly renewal rates.

Given this scenario, the volume component totaled 82% of the gross addition of ARR in the last 12 months vis-a-vis 78% in Q4 and 67% on Q1. At this percentage refers to the average of the last 12 months, the level of the quarter was even higher than 82%. Now when we go to Slide 11. The adjusted management contribution margin for the surpass the BRL 0.5 billion, reaching BRL 532 million. This is a reflection of the continuous evolution of recurring revenue and also the seasonal revenue from corporate increase and productivity gains, which translate into an operational leverage even in the face of the effects of the adjustments of the collective bargaining agreements in the state of Sao Paulo in January. As a result, the contribution margin over the contribution margin on the net management revenue reached the highest level in the years with a growth of 30 basis points when compared to Q1 of 2022. This is a record. This is a high time record when we compare it to other years.

Now Techfin. Slide 12. It is worthwhile remembering that different from the management and business performance dimensions, the revenue of the Techfin mentioned is entirely transactional. And by nature, it is less predictable. On the other hand, this kind of revenue and enables a higher take rate and captures market growth. Therefore, complementing the recurring revenue characteristics present in other dimensions. Currently, this dimension is made up of 2 operations: one supplier, which is a company with over 20 years in the market consolidated in its niche and its main funding as the last largest [indiscernible] Brazil classified as AAA and the organic Techfin operation created over 3 years ago, which has been building a portfolio of solutions based on strong competitive differentials, a B2B journey integrated with TOTVS' management software and an intensive use of the data available in the software.

Within this quarter, the revenue of credit products, which still have supplier as the largest part of the revenue had a drop of 28% when compared to Q4 due to 3 factors: 1, the lower volume of credit in the period due to the seasonality of the agribusiness production and lower performance of some segmented due to slowdown in economic activity to the reduction in the average production term, also explained by Agribusiness seasonality; and 3, the growth of funding costs 7% above the last quarter, mainly because the cash position, both for supplier and FDIC has been lower. And therefore, the financial revenue generated by the invested cash reduce these funding costs. It is worth mentioning that a lower volume of credit during this period is not directly connected to the reduction of supplier credit limit since the default rates remain quite sound. As you can see on the right box of the slide, even with the increase in defaults in Brazil average, the impact on supplier was small since the difference between Brazil average and supplier increased from 170 points on Q4, 190 basis points during this quarter.

Additionally, the provision for expected loss also showed a strong reduction being 48% below Q4 of 2022 and 19% below Q1 of 2022. In the chart in the center of the slide, we can see that the loan portfolio presented an increase of 8.4% year-on-year with an average maturity of 69.5%, days the increase in the loan portfolio, even in the face of reduced production is significantly associated to the Agribusiness produced in the last quarters with longer terms and that seasonality seasonally increased the relevance of the supplier portfolio and the mix of FDIC. Also worthwhile mentioning the cross-sell of the Mais Negocios products in the total client space. And these clients account for 65% of the new affiliates and 48% in the implementation of the affiliates. Now on Slide 13, in the scenario of the first quarter with a certain economic slowdown in some important segments, which have set the suppliers' credit production and reduced its net funding revenue and its profitability.

Suppliers focus remains on its most valuable assets to that is to preserve a low level of defaults. Thus, the reduction in the EBITDA margin in TOTVS when compared to Q1 of 2022 and Q4 reflect, #1, the already mentioned reduction in Techfin funding revenue. Costs and expenses are primarily fixed nature, which have already begun to include lines of investments in R&D, administrative and other expenses to accelerate Techfin via a joint venture. It's worth reinforcing that supplier is a very profitable operation, and that will benefit from the cost funding through the JV. On the other hand, JVs on the still loss-making operation with accelerated growth and there are different strategies of products and portfolio to maximize the capture of value of the operations identified together with TOTVS client base. Now I will hand it over back to Dennis so he can talk about ESG and then his final message. Dennis?

[Dennis Herszkowicz, executive]

Okay, Maia. On the ESG front, we highlight our ordinary yearly meeting held on April 19. It was attended by more than 80% of the voting capital of the company and had all the proposed matters approved. Among them, it is worth mentioning capital budget, global management compensation and a change in the company's share-based incentive plan. We also maintained the AA plus rating by Fitch and according to the agency reflects the company's leadership in the software solutions sector, a broad distribution network with a diverse portfolio of solutions, increase more integrated and better evaluated by customers in addition to consistent margins and volatile macroeconomic scenarios, among other factors.

Now on Slide 17, we continue to move forward the construction of the 3 vehicle system and innovative and pioneering system strategy that gives to the client new journeys and to TOTVS new markets. In the management direction, recurring revenue progressed 20% year-on-year compared with the higher level of contribution margin in year mainly due to the growth in SaaS revenue associated with productivity gains, which translated into good operational leverage. Business performance, the construction of the largest ecosystem in Brazil continues at an accelerated pace of growth with a highlight on the recent results and acquired operations on the planned transition of the RD station command reinforcing the center role of this structure and in helping customers and partners to leverage their marketing and sales initiatives.

Finally, in Techfin, we continue preparing for the approval of the Itau JV. This is a transactional with transformational potential and will lead to a much more broader sustainable and competitive portfolio of solutions in our 2 operations, supplier and the organic operation of Techfin. Within this context of preparation and expansion, we launched in April, a working capital pilot project, product TOTVS based customers. We will complement Techfin portfolio. It is important to say, even within a more challenging scenario, we are ready and in a privileged position to leverage the current and future opportunities, be it organically through strategic partnerships and also through M&A. Now we are at your disposal for the Q&A session, which will be conducted by Sergio.

[Sergio Pauperio Filho, executive]

[Operator Instructions] Marcelo dos Santo from JPMorgan.

[Marcelo Santos, analyst]

My question is about Shopify. What is the time line for implementation? And can we -- can you give us a little bit more color about the economics in this partnership? How are you going to make money? Is it with maintenance? And then how do you see the volume of new contracts in management? So don't think about the price? Just tell us about the volumes.

[Dennis Herszkowicz, executive]

Marcelo. I'll start with the last part of your question, and then I'll turn it over to Tubino. In terms of volumes, we continue to perform in a very healthy way. We are happy with that. This component has been increasing its share and the percentage that we show in the release is a percentage that reflects the last 12 months, which means that in the quarter -- in the current quarter, this percentage was even greater than 82%. It is, therefore, an addition that is upscale, let's say this, if we can because this has to do with our sales force in terms of selling to new clients and cross-selling and upselling to our client base. Q1 is naturally a weaker quarter in terms of sales. So the fact that we are able to generate the volume that we generated is extremely positive. There is an expectation because of our track record and the seasonality that Q2 should be better than Q1. And this just taking into account the seasonality that we have seen in the past.

Before I turn the floor over to Tubino, I would also like to say that for a long time now, maybe for 2 years now, we have been saying that our performance in e-commerce was really good. Our JV with the tax was really good, but we began to notice that there was a major gap in terms of serving our customer base. And that gap was in the small- and medium-sized customers. So we were negotiating looking for a solution to bridge that gap. I am extremely happy, and I would like to congratulate Tubino and his team who were directly involved in this negotiation. I'm very confident that we are bringing in an excellent partner, just as VTEX , and I think we will be able to provide a response for the needs of our clients. Congratulations to Tubino. And in terms of the economics of it, we can't give you a lot of detail. But what I can say is that this is a value sharing model. So without giving you more details, these are good conditions for us, but which involve as is the case of the VTEX. It involves percentages of everything that is generated within the business.

So just to answer your questions, we are implementing it straight away. We have the machines, the audit team has the machines, and we are thinking in terms of how we can leverage our strength in terms of creating content, going to market and help these 200 agencies to expand the portfolio in e-commerce. It's an excellent opportunity for RD and TOTVS, but also very good for Shopify. We are announcing this and making available a native integration between Shopify and RD products, such as marketing and Tallos, the thousands of clients of RD, which have a path at the end of the funnel, and they can convert it and create revenue for them and for their clients before the 130,000 clients of Shopify, they can plug in RD and Tallos to improve their sales performance.

The merchants, the e-commerce companies within ad is now the second in terms of our base. So there is a very good fit there. And as we said, we are setting up the capabilities in the most integrated way we can, using all formats, partnerships, organics, M&A sharing so that we can have the best possible solution. And if I'm not mistaken, Tubino, this is an unprecedented partnership for Shopify. So on their side of the deal, they have been able to break some paradigms, which is an achievement.

[Sergio Pauperio Filho, executive]

Next question, Cristian Faria from Itau.

[Cristian Faria, analyst]

In terms of churning, when we look at the net addition of ARR, we see that the amounts have decreased quarter-on-quarter and year-on-year. But when we exclude the churning, we see the maintenance of the level of sales So last year was positive in terms of an improvement in the churning. But this quarter, we saw a sudden increase by 98.8% to 98 now. So why did that happen? This increase in the churn? And what can we see going forward? What can we expect in terms of a normal pattern of journey?

[Dennis Herszkowicz, executive]

Thank you again. I'll start, and Maia might want to add something to what I say. This fluctuation between quarters is a normal thing at the end of the day. You can ask me, should we -- would we want to keep 98.8%, Yes, of course, but it's normal. There was no change in the trends. We have been operating within this interval and between 98% and 99%. So anything and especially if you look at the last 12 months, 98%, 99%, that is normal. There is no sign in terms of a change in the trend, especially in a quarter where we mentioned that there was a fluctuation in Dimensa. Dimensa is a smaller operation that is very particular features, characteristics relative to all the management operations. That's why we carved it out, and we gave a complete independence and we brought in a new partner. It has unique characteristics that cannot be compared with the other management operations. And the major difference may be the fact that it has very large clients.

In TOTVS, it's the other way around. We have thousands of clients of different sizes, but Dimensa has a little bit over 100 large clients. And when we had -- when you have an operation with that characteristics, any contract that is not renewed from one quarter to the next, and you have to think about like drawing the line at the end of the -- of the quarter, this may create a fluctuation. If you're talking about 1 or 2 contracts, that account for BRL 1 million in terms of MRR, this means BRL 12 million in ARR. So this has a wait, isn't it? And if you take into account inflation, as Maia said, there was a drop relative to Q1 2022 or Q4 2022. And it's exactly the right conclusion that you got that sales to new clients, all to the client base through cross-selling or upselling, the sales were good. Even when you take into account that Q1 is a weaker quarter. From our point of view, Q1 was -- Q1 saw very healthy sales. The only thing that I would like to highlight is this characteristic of Dimensa.

The renewal is not automatic whereas our other contracts have automatic renewal. So unless there are specific demands to stop the contract, the contract continues every 12 months, the renewal is automatic. But in the contracts and the demand because of the profile of the clients, there is no automatic renewal. So periodically, we have to work to renew the contracts and sometimes change the parameters, especially when there is a change in the scope.

[Cristian Faria, analyst]

Perfectly, if you allow me to follow up, considering that this fluctuation of the Dimensa contract was a one-off, and the company is addressing this. We should see a positive effect from -- because Dimensa will resume this contact and we'll renew this contact.

[Gilsomar Sebastião, executive]

Well, we do not disclose what -- what is the dimension I mentioned, it's within the consolidated management level. What I mentioned in my speech and in my past question, well, as a track record, we have a second quarter like the third, fourth quarter with better all seasonality because February is a short month in terms of days. Well, January is a month in Brazil where people take vacations. So simply because of the seasonality, many to will expect a better cycle in terms of ARR in terms of volume when we compare it to Q1, and this includes Dimensa.

[Sergio Pauperio Filho, executive]

Next question from [ Marco Nardini. ]

[Unknown Analyst]

I have 2. One, the Shopify partnership with R&D station. Could you elaborate on the different in terms of economics with the VTEX economics and what about people and products. And number two, business performance. Does it make sense to see an M&A in digital commerce? Or is the idea to remain with the same partnership model, one with M&A and one digital.

[Dennis Herszkowicz, executive]

Well, now regarding the economics of Shopify. As I already mentioned, we do not disclose information regarding these economics. Nonetheless, they are similar to the economics from the VTEX partnership because we're talking about sharing the revenues as well as the expenses. Therefore, there are responsibilities from both sides. Each one assumes these responsibilities and the sharing of revenues. This is the most that I can disclose. Tubino, you would like to add something?

[Juliano Tubino, executive]

I think that we have different dynamics when we stabilize that the ideal customer profile of both customers is significantly different. And this will help us to allocate resources, go-to-market and our positioning. Now answering your third question, not only regarding M&A, but digital commerce is a super category. It is the decision of sub-shop, doesn't only involve the functional scope of product, but also the go-to-market with. You see the peer and the complexity, the level of target customers, well, we need more than one solution. And if we see the platform of digital commerce, there is an amount of aided capabilities company functionality, the B2B integration with Marketplace or a purchase portal, everything can be considered digital sales, and there will be assets and go to markets that are specific. The category is bigger than the e-commerce platform. We have logistics, payments, referrals, analytics. It is still a very big category and we can use partnerships, organics or new M&A. We can use more than that. And just to close this, 2 points on one side. It is a major and fragmented market still.

Therefore, there are a number of stages, which still are separated in different companies providing the service, which provides complexity and major companies can coexist naturally in these environments, but smaller companies that is most of our customers, it's difficult for them to navigate on their own. So total proposes and this is a message that we have consistently conveyed our proposal here is to become the partner of our customers from A to Z. And this means that there is still a lot to do and many strides to take organically through partnerships and through M&A. As we are announcing the strategic partnership with Shopify does not -- that doesn't mean that we will not continue adding more solutions even through M&A.

[Unknown Analyst]

Perfect. I believe that this is clear. Just a quick follow-up to Tubino. Which were the main points that led you to work with Shopify and not to extend your partnership with VTEX at the integrated store?

[Juliano Tubino, executive]

Well, Shopify is a worldwide benchmark in a number of points. We can see products, investment capacity and because they complement what we can offer, like structure, like growth, like local billing, the agency ecosystem. This is something that they didn't have in Brazil. So this -- so we can give the best and we can complement each other.

[Sergio Pauperio Filho, executive]

Next question, [ Luca Savi, ] UBS.

[Unknown Analyst]

Now going back to management, I would like to understand the ARR transfer to recurring revenue, there has been a slight drop. And how do you see this indicator from here on Question 2, regarding Techfin, better understand the difference between the contribution and the EBITDA margin. I want to understand why this happened to understand better the behavior of these 2 indicators.

[Dennis Herszkowicz, executive]

Now question number one, the connection between ARR and recurring revenue. Now this quarter, I would say that we expected we expect it to overcome this. Now the recurring revenue didn't make as much progress as the ARR did in our view, this shouldn't extend itself for a long period of time because basically, there were a number of fluctuations during the quarter, mainly connected to renewals. We've already mentioned this regarding Dimensa and also factors that were connect the to contract updates. The slow down in the GPM update was strong. We mentioned here the fact of management, the -- also the slow contract renewal, and this sometimes doesn't appear quickly in our revenue. I believe that from here on, we imagine that we will not see this anymore. And in-brief, we will see these 2 metrics going hand in hand. Now Techfin, could you repeat this question again?

[Unknown Analyst]

Has to do with the impact in the contribution margin and EBITDA.

[Dennis Herszkowicz, executive]

So in Techfin, as I said before, the cost structure is primarily a fixed structure, and it includes funding. So we have the FDIC, which is the source of funding, and we have the operational structure. So there is an operational leverage, but is extremely high because we have this fixed cost structure. So as there is a drop in revenue because of the decrease in production and other factors, there is a mismatch between the gross margin which is when you exclude the funding costs and the fixed operational costs, especially suppliers. In terms of Techfin Organica, this is even more true. And this has to do with the investments we have been making to prepare for the JV. There is a mismatch, a big mismatch between the gross margin and the EBITDA margin of that operation.

[Sergio Pauperio Filho, executive]

Now Lucca [indiscernible] from Bank of America.

[Unknown Analyst]

I have 2 actually. The first has to do with margin, but on a consolidated basis, how can we think in terms of the expansion of margins going forward? There was a very strong margin expansion this quarter. Is this going to continue in the next quarters? And then in terms of business performance, you talk about cross-selling, internal cross-selling, 27% of the customers now have other products, but what has it been like with other dimensions of TOTVS, CRM and others?

[Dennis Herszkowicz, executive]

Thank you, Lucca. I'll take the margin question, and then I'll turn it over to Tubino to talk about business performance. In terms of margins, yes, we saw a very good first quarter. It was a record actually. But remember, from a seasonal standpoint, it is weak in terms of sales but strong in terms of margin because this is when we apply the corporate model, which has a very good impact on the revenue from licenses, where the gross margin is extremely high.

So naturally, the consolidated margin, which is driven by the management margin should fall in the next few quarters. This is a seasonal behavior that we have seen throughout our history. In the last 2 years, we didn't see that because of the pandemic, and there was a mismatch between the passing through of inflation on the revenue and the impact of inflation in the collective bargaining agreement. Now in 2023, things have gone back to normal. So this is what we expected. That is that the margin in Q3 should be slightly lower than the margin in Q1. However, we believe that when we run a comparison of a quarter relative to the quarter in the previous year, we should see Q2, Q3 and Q4 with a positive outlook.

So again, Q1 is seasonally stronger. But in terms of consolidated margin throughout the year, this seems to be -- seems to have a good outlook. I think the integration between intra dimension. This has been extremely important because we are getting ready to penetrate new markets in terms of business performance and integration comes from internal processes, cultural alignment, motivation and incentives for people. We have finalized what we wanted to do in terms of integration. But it also comes by integrating product and distribution model, especially when we have an offering or an asset that makes sense within the ICP, the segment that is covered by the management dimension.

So when we look at the results of digital commerce, they are mostly coming from an integration between the 2 dimensions: total integration, ICP, distribution channel. So the results today of digital commerce are achieved by our own units and by the franchisees. So whenever we have an integration of ICP and segment, we have a faster integration. Our mandate in terms of business performance is not only to create a portfolio solutions or an ecosystem, which we call business performance, but also an expansion of TOTVS to all the segments in terms of the size of companies. So this allows us to have a greater presence in terms of in terms of distribution system, for example, this will be less intense. So we have to think in terms of portfolios. In some portfolios, there will be total integration. And in others, it will be a partial integration.

[Sergio Pauperio Filho, executive]

Now moving on to the last question open here for Gabriel from Morgan Stanley.

[Unknown Analyst]

You said in the beginning that you said positive trends in signing for Q2, then you talked a little bit about it, but can you give us some more color about demand, for example, for Q2?

[Dennis Herszkowicz, executive]

We know that the economic scenario is a scenario of slowdown, and it's been so for the last few months. The tax in operation, as Maia said is a transactional type of business, and this is not the case in the management dimension, which is the dimension we have historically worked in. So we do see that there is a slowdown in some segments. Having said that, from the point of view of adding ARR of sales in management and business performance, we are still seeing a very positive performance in January, February, March, those were very strong months in terms of sales in management, but also in business performance. And what we can say based on the information that we have and what we can see ahead of us that this performance should continue to be positive throughout the year. It's a more challenging scenario from an economic standpoint, this may change. But at this point in time, with the information that we have, we believe but the performance in terms of sales in business performance and management will continue good throughout the year.

[Sergio Pauperio Filho, executive]

We now end the Q&A session. Those questions that have not been answered live will be responded by our IR team.

[Dennis Herszkowicz, executive]

Thank you, Sergio. I just wanted to end by inviting you to the 2023 addition of TOTVS' Investor Day. This is an event that is exclusive for market analysts, investors and other professionals of the capital markets and is going to take place on June 28 within Universo TOTVS, the largest event of technology and business in the country. There will be 2 ways to participate. You can participate online or you can come to the venue. And if you come to the venue, you will have access to the 2 days of Universo TOTVS, a unique opportunity to meet and interact with the company's ecosystem. For more information and conditions to participate, please go to our IR site or right to Sergio and the rest of the team. And of course, I hope you can all attend. Thank you so much for attending this video conference. Have a great week, and see you next quarter. Thank you so much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]