Totvs SA

BOVESPA:TOTS3

Earnings Call Transcript 2022-Q2

[Sergio Pauperio Serio;Investor Relations, executive]

Good morning, everyone. Be welcomed to our results presentation today. I'm Sergio and I have Dennis here, our CEO; I have Izabel; I have Maia, our CFO; and as usual, we will bring you the most important results of our last quarter, and then we will start with questions and answers. In this new format, if you want to ask a question, please raise your hand. We have a button down there that you can use. If you prefer, we may have your question in a written form in the Q&A button, we will answer the questions in the questions and answers round, right.

Before we move on, we would like to clarify that the statements that we can have here in this video call regarding business perspectives, projections, forecasts, our beliefs and premises of the Board. They are not a warranty of our performance. They involve risks, uncertainty and premises, because they are about future events and they depend on circumstances that may happen or not. Investors must understand that the general economic conditions, the industry operational factors may affect the development of our company and may cause different results that we may have in the future.

Now I will give the floor to Dennis that will start the presentation from Slide 4. Dennis with you.

[Dennis Herszkowicz, executive]

Okay. Good morning. Thank you, Sergio. Thank you. Be welcomed everyone. I wish everybody is fine, safe. The first thing I'd like to say is that we have a meaningful progress in the operation in the second quarter of 2022. We grew 30% on our net revenue year-after-year, year-to-year. We grew our EBITDA margin even without the positive effect of BRL 36 million of revenue with the Corporate Model License 1Q '22. Even with the dilution of 2x or 3x greater year-to-year with the collective readjustment of the bargain of salaries and wages in the first quarter, we recovered the Techfin result with the net revenue acceleration of funding, the reduction of our PDD and the contribution expansion.

In Business Performance, we accelerated on the growth of recurring revenue quarter-after-quarter and we have more ARR net addition revenue. That in a very, very challenging scenario, which shows a solid company with a resilient business model, with loyal client base, satisfied clients. It's a brand that is associated to innovation, a winner approach, and we have a very committed and engaged team with us. That's why, as usual, cannot leave this opportunity behind to say thank you to all the TOTVers, to their families and the millions of users and thousands of clients in Latin America.

In the Slide 6, we see that these achievements happened in all the dimensions. We had better revenues and contribution margins. And now we have BRL 966 million as a net revenue and EBITDA adjustment margin of 63.1% where they grew, that is a very interesting one with 37%. So the first thing I'd like to say is, a growth of 27% of the recurring revenue because of SaaS that is still growing and is better year-after-year, getting to 37%, as I said before. The acceleration of quarter-after-quarter growth of our net revenue in Business Performance with 1.7% with moving to 8.2% and a Tech growth of 36% quarter-after-quarter.

And finally, the progress of 10% of our net revenue and funding in Techfin, if compared with the first quarter. And the margins, we have 10 basis points of advance quarter-after-quarter without the increase in the corporate model license that was a record in the first quarter of 2022 with a dilution year-after-year of the collective bargaining in the first quarter.

Besides that, it's important to highlight the important growth quarter-after-quarter, 11.6 points in the Techfin contribution margin, not only because of the revenue that is greater now, but the reduction of PDD and 7 points more of the Business Performance contribution margin. So our engines of growth are still moving on, so representing more or less 43% of the total revenue and more 55% of the revenue year-to-year.

And as you can see in the 7th Slide, we're able now to increase the relevance of our recurring revenues, keeping the profitability in a very healthy level. In the Rule of 40, you can see that in the slide, the ability of keeping the balance between growth and profitability can be -- it's evidenced by being the 53.2% metric in the quarter, 8.1 points of both the previous year and it's very valuable in this unsteady moments.

Now let me give the floor to Maia, so he can comment on the business dimension results, from the Slide 9, please.

[Gilsomar Sebastião, executive]

Thank you, Dennis. Yes, as we were saying, the highlights go to the growth, 27% of our recurring revenue that is now representing 85% of the total revenue of that dimension. Once again, the recurrent revenue was driven by the SaaS revenue that is still growing, accelerating 37% year-to-year, and we may highlight the 20% growth of new signings and 48% of cloud.

The year-to-year recurring revenue of our management, our business model grew BRL 3.3 billion or Brazilian reais. We have an additional -- a net addition of BRL 214 million, right? As we can see, we're moving from a level of 62% in the last 12 years to 7% -- 67% in the first quarter of this year and 70% in the last quarter. This effect shows that even with the price in absolute levels that are similar to the ones we saw in the second quarter of '21 and the renewal rate that is a little bit below the level of the first quarter, this growth of our volumes allow the company to have a net addition of 55 -- 56% greater than last year.

Now in the Slide 10, you can see the contribution margin of management that is growing 40 basis points quarter-after-quarter, keeping BRL 450 million level in absolute values. This performance was because the growth of our recurring revenue that is balancing the positive impact of our record increase in corporate model in the previous quarter. If we do not take this into account, we will have a growth of 130 basis points even with the dilution that is considered because of wages and collective bargain.

Now in the next slide, 11, and the dimension of our Business Performance, we have revenue acceleration, more sales margin in the comparison between quarter-after-quarter. Net revenues of this dimension grew 30% year-after-year, and we reaccelerated from 1.7% in the first quarter to 8.2% in the second quarter. The recurring revenue of Business Performance represented 98% of the dimension revenue. And it was shown in this graph in the middle of the slides, it grew 31% year-to-year.

Our revenue year-to-year, recurring revenue year-to-year was also the highlight of this quarter, getting to BRL 300 million and we have very important highlights here like the upselling of entry level and the cross-selling of CRM, the client base in our RD station. This progress in revenue associated with the investment of the infrastructure optimization brought to our historical level of 75.3% and the net -- the gross margins, which represents 280 points above the second quarter of 2021.

As we showed in the next slide, you can see here that these gross revenue growth created more contribution, getting to 48.4% in the quarter, 70 points above the first quarter. That too without stopping the investments in R&D. That's why this shows that we are focused on growing and getting better revenues.

Now if you can see the Techfin, our Techfin revenues grew 19% year-after-year, 10% quarter-after-quarter, even with the funding costs being affected by the interest rate increase in this period. This Techfin revenue is associated with the production of credit, growing -- that grew 8.5% year-after-year, 3.3% quarter-after-quarter, achieving our EUR 10 billion level in the last 12 months, and you can see here in the graph on the right side of the slide.

It's important to say that the strategy of the current sale strategy of Mais Negocios is still evolving with more integration with the main ERPs and TOTVS with the reduction of the middle term and the deployment of products in new affiliates. As a result of this 55% of our new affiliates in prospection and 60% of the new affiliates are clients that belong to TOTVS. So we have lots of potential here.

Besides the growth on production, revenues are also affected positively by the FIDC portfolio and negatively affected by the production average time or lead time of 3.5 days, less than 1 in the first quarter. This average time of production is translated into a credit portfolio, 2.5% smaller than the second quarter if compared in the first quarter with a reduction in our overdue portfolio in 30 days, and we have now 1.2% of our portfolio in the first quarter to 0.9% in the second quarter.

That shows how important it is to do efficient adjustments in the first quarter because the increase in the overdue portfolio reflects more -- reflects the adjustments within the credit limits. As a consequence of this reduction in the initial groups for overdue or default, we have a reduction in the expected losses for the second quarter, 29% of reduction if you compare it with the first quarter.

If we can have a last comment on the Techfin -- in the Slide 14, you can see that the contribution margin is now with 63.1%, which is a very interesting recovery of 11.6 points on the first quarter '22. That's because we have 10% growth of Techfin revenue with fundings and a reduction of 29% of our losses -- expected losses. It's important to mention that this achievement in the contribution margin and the performance in this quarter.

As explained before, was affected negatively by different circumstances of this period. The quick recovery of contribution margin proves the resilience of this model and the ability of the supplier to adjust the operation to keep a healthy background with credit with low credit losses, that's a very, very important asset.

Considering the relevance of human capital for TOTVS and with the 6th edition with our integrated report, we have Izabel to talk a little about that. Izabel, the floor is yours.

[Izabel Branco, executive]

Thank you, Maia. Thank you. I'm so happy to have you here. Our proposals that we have here is to keep an eye on our human capital. On the Investor Day, we know how important is people to become a driver of our growth. We have worked in 3 pillars; make our culture stronger, attract and develop people, and engage and retain talent.

Our strong culture that is a diverse one, multidisciplinary one helped us to have a very solid base to evolve all the time. In this sense, diversity is a very important topic we work strongly with our affinity groups. And now they are turning 1 year of existence, and we have also our program for people with handicaps and trying to move forward with inclusion and creating a talent database.

We have also a very solid, robust culture that makes 93% of TOTVers say that leaders act accordingly to the culture and the attraction pillar, our glass door is still in a growth curve and is getting to 4.2 points. Our talent bank is also growing. We have 23% more than -- hirings than in the last year, at the same period. Talking about this and talking about development, we have a very, very important ambition when it comes to young people. We want to have TOTVS as the first choice for people who want to join the technology labor work or labor force.

We want to have programs between tech career and young people. We have an iOS, which is the institute for the social opportunities. It's a non-profit organization that we are helping them for 24 years. And we have the internship tech that is a program that started in 2021, and all of these programs are definitely giving us back some important [indiscernible] that help us to train people on the tech careers.

We have a virtuous cycle that becomes -- or that translates interest into engagement, helping us with our e-NPS, and we are recognized for the third year in a row as the best company to work by a Great Place To Work, one of the best companies. This is possible because we combine the essential elements of sustainable human growth, transforming challenges and opportunities, all right.

Moving forward with the next slide, 17. Yesterday, we had the last version of our integrated report. We want to promote more visibility, respected DODGs or the SDGs, right? And for the first time, we have information about the green gas or the greenhouse gas affect, right, our emissions in our model. We have different possibilities, for example, health, mental healthcare programs, different expansion of initiatives and projects for flexible working model.

And when it comes to the G, we have the risk matrix that was reviewed considering the GDPL law, the conclusion or the finishing of the implementation of our SDG initiatives. And we have committees that are working on SDGs and see how can we do it? To have -- to take a look at these reports, you just need to point your camera to this QR code here, or you may access our investor website ri.totvs.com.

With this care and these possibilities, we are moving from BBB to Single A, placing the company in a very select group of global companies. So when we were talking about TOTVS, we are not talking about clients. We are talking about all the stakeholders and the TOTVers that are driving our growth. So Dennis, our final message.

[Dennis Herszkowicz, executive]

Sure, our final message. Thank you, Izabel. Okay. This is the second half of the year, and we are moving consistently to become a trusted adviser of our clients. We with meaningful progress in different areas, especially 3 of them. When it comes to management, the growth which is in recurring revenue is still driven by the SaaS revenue. We are getting the historical level of 85% of our revenues in that sense.

When it comes to Business Performance, the record addition of, a, of our recurring revenue year-to-year shows the consistency of our sales in the quarter, and we have opportunities that in a market with low penetration. We are convinced of our potential in this dimension, and we want to balance growth and profitability. And when it comes to Techfin, we know that this very, very important business is able to adjust to growth, keeping the history -- our history of a very, very healthy loss prevention. So we want to keep our companies growing. We want to help our clients so they can use technology to leverage their growth, being more flexible, being more profitable.

That's our proposal, and we want to have the -- free the ecosystem construction, and we want to have the companies investing in technology regardless of the economic situation. Our process to consolidate these 3 dimensions in an integrated forum that is dependent and interconnected will help our clients to sell more and sell in a more smarter way with Business Performance, with more intelligence, to have more financial services with Techfin and have -- and be more efficient when it comes to management, okay?

But we are here for the questions and answers. If you have some questions and answers that will be conducted by Sergio.

[Sergio Pauperio Serio;Investor Relations, executive]

All right. As I said before -- thank you, Dennis. If you want to ask a question, a live question, just raise your hand. We have some possibilities here. Or if you want, you can ask the question, raising your hand or in the Q&A. I mean, the way you want it, okay.

Our first question here is from Marcelo Santos, JPMorgan.

[Marcelo Santos, analyst]

The first question is the following. I have questions on Business Performance. The first one, if you can tell us a little more about the 2 elements that you mentioned of what you call, ARR, like the cross-selling and the other strategy that you mentioned. If you can tell us more about this recurrent revenue year-to-year?

And second question is more a strategic one. When we talk about the synergies between Business Performance and management, do you think more on selling the products of Business Performance to management, that's a possibility? Or you're thinking more like a funnel, like a sales funnel, companies will become smaller in Business Performance, that will reduce CAC, what's more relevant for you when you come -- when you think on these 2 blocks?

[Dennis Herszkowicz, executive]

I'll start and Maia, Izabel, if you want to say something else. Okay. CRMs. CRMs are the -- that was an acquisition that we made like 2 or 3 years ago and the companies like RD, they have a challenge and a strategic challenge, a very interesting one, because normally they started with a single product that can have different versions, for example, more or less sophisticated, you have the entry level, the premium level. And well, they have a challenge, right, to add a second, third, fourth product. Most of the products, I mean most of the companies, when they get there, they face a hard time.

And RD, when they acquired this company, that was the first attempt to move forward and surpass this barrier. It was an important time so they can adjust the demands and the supplies and be prepared with the company, the CRM company that was acquired to manage a meaningful volume to sales and clients. After sailing through this preparation time, what we have seen in these last 12 months is a very, very important acceleration when it comes to CRM. And this growth is a very natural one. And I believe it comes from cross-selling. I think we have a fit, a good fit in CRM and the marketing companies, all right?

It's interesting because we have a phenomenon here that was not -- that was an unseen one and that help us to understand the next question, which is -- we have a great, great volume of clients of CRM that are not yet clients, the marketing platform. So we have a dynamic here that was not expected where the CRM in many occasions is the entry door. Is the entry level for a new client for RD and the cross-selling will be the opposite, right? The client may become a marketing client, whether entry level or premium, right? And the dynamics of the entry level are just like that. You have these products that become an entry level, is less expensive, is less sophisticated, and then you have a -- some tasks that you need to do with these clients so they can move to the upselling, let's say, to the premium product. These 2 dynamics, they are possible, and they are very important.

And to answer your second question, Marcelo, I would say that in the first place, the idea is to have -- to be stronger in cross-selling Business Performance for our clients in Business Performance, but I believe we have the opposite as well. It's not where we are focusing now to say the truth. The efforts are being aimed at creating the first success case, the first business case, selling Business Performance to the management clients.

We said that in our event named Universal, so we know that, that's a possibility. We noticed -- we started to notice that with the CRM sales, we see that some clients are interested in doing something like that. And maybe before we expected, the second offering will happen, but we don't know. We believe that with time, this opportunity may pop up, the opposite opportunity, all right? Management for Business Performance clients.

And that said, here, we are discussing the size of our clients. And we know that we have the perception of smaller clients, right? Business performance for them is the core -- maybe they are not interested in management yet. When we see these companies that are very, very small, what we say here, MTN, micro and small companies, right? We see that they are simple companies.

The business is very simple. So maybe the management software is not very relevant for them. But at the same time, digital marketing, CRMs, e-commerce, omni-channel marketplace, that's something that is very relevant therefore. So I would say that looking to the future, not the near future, let's say, not the next 2 quarters, TOTVS may become -- I don't know, may start working in that sense when we think then the size of the client and having dimensions that may be more relevant for some clients and some other dimensions can be more relevant for other client sizes, right?

[Sergio Pauperio Serio;Investor Relations, executive]

Next question, Fred, Bank of America.

[Frederico Mendes, analyst]

Sergio, I have 2 questions. The first one, I think I would like to understand the inflation trends. On one side, it seems that the inflation is finally being controlled. It was too high. I think you were not charging, let's say, adding this inflation to the contracts, and I would like to know how you see this. And now with this inflation controls, do you have more room to charge more to the clients, I don't know, 100%, 70%? What's the rationale there now with the new possibilities of the inflation, how do you see that? That's my first question. I don't know if that makes sense or not. And this revenue that you're seeing here, is that rev rec -- I mean, this is recognized in the management, in their recurrent revenue or the model is the same. You have the ARR, you recognize it and then you turn it into revenue later.

[Dennis Herszkowicz, executive]

Okay. I think on your first question on the inflation, charges that we do make to our clients. Well, we have a contract that is valid for 1 year with our clients. It depends on the negotiation, right? And when they -- when we get to the 12th month, we have a automatic renewal. In this renewal, we have an adjustment. We have an inflation adjustment, okay? This is an automatic practice. It's a very popular one by TOTVS and other companies, all right?

The clients themselves, they have these software companies and other vendors and it's a very normal practice, a regular one, okay? So, it's good. Of course, we have specific situations where you can have a different treatment and you may address the situation in a different way. Of course, -- but considering the circumstances, of course, that's something we do in normal and bigger accounts or in a very specific situation. But yes, normally, we will have 100% of them on landing or transfer of this inflation prices. So, I don't feel this practice will be changed in the future.

Talking about your second question. For IRR, we have our year-to-year recurrent revenue and we see how we recognize the revenues. But -- it takes a little thinking on the way we recognize revenues here is we see that just the planning of this management is something that we do, yes. And we have the Vadu, as we call it here. I don't know if you know that.

[Frederico Mendes, analyst]

Yes. Sure. Awesome. It was good.

[Dennis Herszkowicz, executive]

Awesome. If you have more questions or if you have something else you want to know more about, just let us know. Next question.

[Sergio Pauperio Serio;Investor Relations, executive]

Andre Salles from UBS. Andre, do you want to raise your questions?

[Andre Salles, analyst]

Yes. Can you hear me?

[Sergio Pauperio Serio;Investor Relations, executive]

Yes.

[Andre Salles, analyst]

Awesome. Okay. I have 2 questions. The first one has to do with the competition in management segment. I would like to know, I know it's complicated to understand their figures. But this slight deacceleration we saw in the quarter, do you feel clients are more careful on technology investments? Or do we have more competitors? I would like to see what is your opinion. And considering this impact of the collective bargaining as a matter of costs that you have at TOTVS, we expect this margin -- the EBITDA margin to be -- to expand in the second half of the year? What do you think?

[Dennis Herszkowicz, executive]

Awesome. Okay, about competition and thinking on the performance and thinking on the -- what we call the ARR, let me clarify something first, that I believe is good. We have that in the release, but I will reinforce things. This is exclusively for the prices dynamics, okay? We don't have anything -- it doesn't have to do with clients and competition, reducing the rhythm or things like that. No, that reflects only the inflation, the inflation that is getting smaller than what we were expecting on first place. So yes, that's a dynamic -- that's the dynamics that we will see as the inflation is falling.

I think no one is expecting or no one is considering for the forecasts, the inflation that we have seen over the next 12, 24 or 36 months, I think it's natural that the nominal addition will fall, right? That's why we feel like have these information. We want to have volumes and prices that should be broken down. So volumes, we are doing very well, very, very well. And adding up to that, I think when it comes to competition, I understand that, yes, we are growing more than the market. I believe we don't have those metrics, let's say, in a permanent fashion. We don't have reliable data on that. But I don't think the market is growing as much as we are doing. And I believe we are -- yes, we're getting more share. That's what I feel, I don't think we are getting more competition and we are not filling the acceleration, no.

On the margin part, yes, I think we had a second quarter that was very, very positive. I think we showed that in the release, the dynamics are those, the first quarter will have a greater margin than the second quarter. Why? Because we have the licenses expiry, we have the corporate licenses, okay? And for this year, we had a historical record, right, in the model. If we purge these licenses, let's say, the results that we have here, I think -- it will be instead of 10 points, it will be 37 points, which is an amazing expansion, right. So yes, I feel that's something that's a very important thing. We are -- at least for now, we are keeping the growth and the cost discipline is important here. And I believe we have the right drivers to have a second half that will be very positive.

I don't know, Maia, if you want to say something in that sense?

[Gilsomar Sebastião, executive]

No, I think that's exactly what I would say. I mean, yes, when we see the first and the second quarter, we see that the revenues are there, are there, I mean, yes. We have the elements. We have all it takes to have these cost controlled. We have enough elements to say that, yes, we will have a very positive behavior in the second half.

[Sergio Pauperio Serio;Investor Relations, executive]

Marco Nardini from XP.

[Marco Nardini;XP, analyst]

First, congratulations for your results. For the contribution margin of Techfin this year, this quarter, I would like to know what you're expecting for the performance of this margin for the next quarters? And the second question is about Business Performance. Can you give us more information about the partnership with [ Bidx ], it doesn't make sense to have a partnership with other companies in that sense for these clients?

[Dennis Herszkowicz, executive]

Have a nice day. Okay, so on Techfin, yes, we feel that -- the way we say it, right, I mean we feel that the second half of the year, if all things remain the same, we see a positive dynamic here. I feel we adjusted what we had to adjust when it comes to credit. Our clients are still asking for credit. We have a positive performance in Mais Negocios, it's a very interesting progress we have there, it's consolidated, okay. And we feel that who knows, I mean, yesterday, we had the meeting of the Monitory Policy Committee in the Central Bank, and we see that in the second half, we may have our interest rates called Selic in Brazil, more stable and maybe next year will go down. So all the negative effect, which is an important negative effect that we saw here with the Selic interest rate going up, maybe next year will be different, okay? So, yes, it will be neutral, probably next year will be positive, okay? So from the margin perspective, for Techfin, that may have an effect, that may have a positive effect.

Okay. The second question was about Business Performance, I'm sorry, can you give me the question again?

[Marco Nardini;XP, analyst]

Yes. If you can give me more information about the partnership with [ Bidx ]. And if it makes sense, do you have like partnership on the e-commerce or other type of clients, maybe thinking on the answer that you provide to Marcelo.

[Dennis Herszkowicz, executive]

Okay. Yes. Well, so far, things are very good with [ Bidx ]. I think it's a positive effect here. We have this challenge, of course. We have a challenge, the client base. That's something that we knew from the beginning, there's nothing new, let's say. But as we move forward with [ Bidx ] clients, we have this mismatch between the products with [ Bidx ]. [ Bidx ] is a fantastic product, but it is addressed to bigger clients. And we have TOTVS with a very important number of clients that are small clients, right? So yes, we have a compliance level, let's say, for pricing, for product, that is not perfect, all right?

So yes, we are discussing with our new head, PH of Digital Commerce. One of the main possibilities here is to be able to find possibilities, alternatives to have more adherence or more compliance, let's say, more adherence for smaller clients, can be an M&A, can be a partnership? Or Organic development, why not? So yes, it's a combination of these 3 elements. So yes, but I don't know. I mean, I cannot say something that is not still discussed with people, yes.

[Sergio Pauperio Serio;Investor Relations, executive]

Next question, Diego Aragao from Goldman Sachs.

[Diego Aragão, analyst]

Dennis, Maia, Izabel, Sergio, I would like to know more about the structure from governance in the company. Who will be the leader of this new venture with Itau. How do you see that? How you see this partnership with Itau? I would like to understand the timing. It will be nice to see that.

[Dennis Herszkowicz, executive]

Let me start by the last part. Timing, well, I think we are in the same level, right? We are seeing that the Central Bank will approve this, we have the good news that the strike in the Central Bank was -- is over now, but we know that the backlog and the work load there increased a little. So yes, we expect to take more time, okay. And we need to see the operation, okay. And yes, well, we see the results are positive. The prospectives are good. We call it Techfin here, whether in this structure and the SUPPLIER that is Mauro Wulkan and Eduardo Wagner, life goes normally, right? But there is a discussion there.

So yes, we don't have the transaction approved yet. But we are discussing and we are talking to each other, and we are seeing the different steps to take, different measures to structure this JV. I cannot comment yet on leadership, but yes, as per contract, we have a governance of this JV that will be shared 50-50, right, 50% TOTVS, 50% Itau, everything will be consensus, agreements, okay. The structure will be divided by TOTVS and Itau, but we are not there. We are not in that definition.

Of course, we have some ideas here of what can we do, but yes, the consequences we don't -- we cannot -- we don't know yet how to answer that.

[Diego Aragão, analyst]

Okay. Can you comment on the possibilities of partnerships with other players that will be nice to know, and about the migration of clients, on-premises or cloud, I don't know if you have that number -- those numbers, those figures, let's say, on-premises versus cloud, and talking about the speed of the migrations on on-premises to cloud, how do they compare?

[Dennis Herszkowicz, executive]

Yes, we will use other companies, yes, partners, even after JV, we have partners today. Those partners will be kept and some others will appear. Once again, it's good to say that we do not have exclusivity JV with Itau. No exclusivity at all. So, we will have partnerships in the market. Why not? I mean we will do that actually and not only in partnerships and offerings, but also in funding. We will have freedom to operate.

Yes, we have some figures here. We can have a -- growth in cloud, it's 50% more or less, the growth, which shows that the penetration levels in our clients is growing. It's growing a lot because they are recurring it's growing less than that, and SaaS is growing less than that as well. So yes, this penetration is growing, definitely. We have half of our clients on cloud, and we do not see any deacceleration on this. So yes, maybe considering this there can be -- we can have more. We can have more, and we can have a greater percentages, okay?

I don't feel we will have 100% of our clients in our cloud. I don't feel like that will happen. I don't think that will happen, right? But today, I feel the nice thing about this, and I even -- I commented on that, it's interesting to say that we were able to consolidate in TOTVS and outside TOTVS, okay? And when we are talking about the cloud, applied to our products, to our services, we see that we have a consensus that the way of using the cloud is the logical one, okay? So it's good. That was not so obvious some years ago, but improving the quality, seeing the possibilities with a pricing that is more competitive with a structure of sales that we have created here, everything turned this cloud offering for our applications like a no-brainer on our client base. I believe we will have more possibilities and we will see the results in the next -- in the upcoming years.

Okay. Next question.

[Sergio Pauperio Serio;Investor Relations, executive]

Felipe Cheng from Santander.

[Felipe Cheng, analyst]

Two questions here. The first one has to do with management. I would like to understand more. Understand the IR, right? And the recurring revenue, I see that it's growing 27%. Just want to understand what is behind these dynamics? If we will see like -- it will be fair to say that the recurring revenue will increase in the second half. And then on M&As, I would like to resend a pipeline. If you have plans to axle the second half or if you have a target, considering the net cash of [ BRL 300 million ], if you can have a greater target here, maybe?

[Gilsomar Sebastião, executive]

Okay. This is Maia here speaking. Just to start with the first question about the ARR or recurring revenue year-to-year. Well, month-by-month or quarter-by-quarter, that will depend on the sales, right, and the other variables like adjustments and the anniversary distribution in the different days of the quarter. We may have a mismatch between revenues and ARR. But yes, we have some levels, sometimes can be greater, sometimes can be smaller, some grace period, and the moment that the clients have started paying, right? So that creates a log. You can see that in the metric, right? When you analyze the contract, do you have a difficult -- this mismatch between ARR and revenue. But with time, both metrics will get closer and closer, okay.

So yes, we are active. We are really active on the pipeline. We have opportunities. We have possibilities. We have possibilities that are more advanced than others. Maybe we'll have some transactions this next month, but you never know. M&As, you don't know. You don't have the possibility unless you have the contract signed, right? So, we don't know yet. But given the volume of opportunities we have here and the way we have moved forward with the opportunities, I believe we will have more transactions in this region, right? About the opportunities, well, it depends. We have strategic structure, strategic fit with our client portfolio, with our distribution channels, opportunities. We have all sizes. We have some big ones, small ones. Sometimes it's hard to tell without having something more concrete in that sense Yes, that's right.

The only thing I would add is that, we -- since the market has started to be more active, let's say, we see this question very often. If the -- the panic attacks that we had in the stock market, if that reflects somehow in the companies that are not listed, right? You don't see that question, but I will give an update in that sense. And I have seen that. We have noticed that. We have noticed a change in the behaviors, right? So we see that the companies that are not listed, we see a availability -- we see people more realistic. Companies that are smaller, they are in the beginning because they are just in the ramp up, right? They are not yet thinking on those possibilities. We see that some people, they feel that the previous elations will start.

But I feel that we have a scenario, the scenario that we saw maybe in the beginning of this year won't happen again. Maybe if it happens again, we'll be in a long, long time. So for us, there are in this favorable situation, that's something positive, yes. Yes and thinking on that, I believe, a very practical example of that is the present news. Many companies, specifically the initial companies doing some layoffs, letting people go. Of course, we see some companies with specific characteristics in cash flow, but yes, we need to see. Some of them can use their resources in greater or at a smaller level. They can expand with different possibilities. I mean they are facing a different reality when it comes to prices. Some of them have opted by being more modest human capital, as they prefer that road instead of fighting for prices, which is different.

And at the same time, the competitive scenario that we were seeing here, it changed, it changed a lot. We don't see the companies that listed in recent times, we don't see those companies being -- or having the possibility of doing an M&A. And the firms themselves, they don't know if they will be able to have the possibility of them having new funding for this dry powder they have. So, yes, the scenario M&As now is more favorable and probably will be more favorable in the next months.

Let me take this opportunity, I know that we don't have a question in that sense. And we weren't concerned here, and we weren't seeing our level of attrition. And the voluntary -- this message, yes. What we have seen here is, I say a very -- a different quarter. I think people living voluntarily. We don't see the same levels, and we see how easy is to hire people. We have 115 slots, and we see more stability. And people are up betting to the company, right? Okay?

[Sergio Pauperio Serio;Investor Relations, executive]

Okay. Final remark, Dennis?

[Dennis Herszkowicz, executive]

Sure. Yes, as usual, I would like to say thank you to TOTVers, to their families. It was a very important format that we are doing here. I hope you liked, it is more informal, closer and the idea is to bring more information, but in a very -- in an easy way, and thank you for your support, and I wish we can have a better performance and a good support from you. Thank you. Thank you, guys.