Zenvia Inc

NASDAQ:ZENV

Earnings Call Analysis

Zenvia's Q3 Results: Growth and New Customer Cloud Launch

In Q3 2024, Zenvia achieved a remarkable year-on-year EBITDA growth of nearly 300%, reaching BRL 41 million, largely driven by increased CPaaS revenues, which surged 37% to nearly BRL 200 million. Despite a slight decline in SaaS margins, the company remains focused on SMBs, predicting sustained double-digit growth. The newly launched Zenvia Customer Cloud is expected to enhance customer experiences and streamline operations, aligning with the company's five-year growth strategy. Looking ahead, Zenvia reaffirms its 2024 revenue guidance of BRL 120-140 million in EBITDA, positioning itself for continued improvement and expansion.

Zenvia's Strategic Transformation

Zenvia has reached a pivotal milestone by officially launching the Zenvia Customer Cloud, marking the culmination of its transition from a CPaaS platform to a comprehensive customer experience SaaS provider in Latin America. This strategic evolution is intended to enhance customer relationships through AI-driven solutions and data analytics aimed at improving brand engagement and service efficiency.

Robust Financial Performance

In Q3 2024, Zenvia reported impressive financial results, including a nearly threefold increase in EBITDA to BRL 41 million, representing significant growth compared to the same period last year. For the year-to-date, the EBITDA totaled BRL 98 million, a 150% increase from last year, aligning with management's guidance of BRL 120 million to BRL 140 million for the 12-month period. The EBITDA minus CapEx improved to BRL 50 million, indicating strengthened cash flow from core operations.

Segment Performance: CPaaS vs. SaaS

The revenue dynamics between CPaaS and SaaS have shifted notably with Q3 2024 CPaaS revenues skyrocketing 37% year-over-year to nearly BRL 200 million, largely driven by one-time volumes. Conversely, SaaS revenues grew by 16% in the same quarter, fueled predominantly by the small to medium-sized businesses (SMBs) segment, which is expected to be a core growth driver moving forward.

Operational Efficiency and Cost Management

Zenvia has successfully reduced its General & Administrative (G&A) expenses as a percentage of revenue from 17% to 13%, highlighting a 400 basis point improvement year-over-year. This boost in productivity correlates with the doubling of EBITDA in both the Q3 and the year-to-date periods, demonstrating a strong commitment to maintaining cost control while expanding revenues.

Future Guidance and Expectations

Zenvia's management reiterated its guidance for 2024, maintaining a focus on organic growth while enhancing profitability. Although they anticipate slightly lower CPaaS revenues in Q4 due to the absence of nonrecurring volumes, SaaS is expected to continue on its growth trajectory. Additionally, there are expectations for continued improvements in cash generation aligned with a deeper integration of the Zenvia Customer Cloud, aimed to foster future revenue and profitability.

Long-Term Outlook and Growth Strategies

Looking ahead, Zenvia plans to expand beyond Brazil and is optimistic about the positive impact on future results. The executive team expressed confidence in leveraging the capabilities of Zenvia Customer Cloud to enhance customer interactions and operational efficiencies, setting the stage for sustained growth. The continued adoption of AI-integrated features is expected to drive customer engagement and contribute to recurring revenue through a monthly subscription model.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and thank you for standing by. Welcome to Zenvia's Q3 2024 Earnings Conference Call. Today's speakers are Mr. Cassio Bobsin, Zenvia's Founder and CEO; and Shay Chor, CFO and Investor Relations Officer. Please be advised that today's conference is being recorded, and a replay will be available at the company's IR website, where you can also access today's presentation. [Operator Instructions].

Now I would like to welcome one of our speakers for today, Mr. Cassio Bobsin, Founder and CEO. Sir, the floor is yours.

[Cassio Bobsin Machado, executive]

Hello, everyone, and thank you for joining us at Zenvia's Third Quarter 2024 Earnings Call. I'm Cassio Bobsin, Founder and CEO. Thank you all for being with us today. .

The highlight of this quarter was the conclusion of the strategic plan we initiated back in 2018 when we decided to evolve from a CPaaS platform to become the most comprehensive customer experience SaaS in Latin America. After a series of acquisitions held before and after IPO aimed at this goal, the official launch of Zenvia Customer Cloud in mid-October is the culmination of this vision. This was a significant milestone in our full commitment to enhancing customer relationships through a practical and easy-to-use platform full of AI-driven solutions and data analytics to enable brands to create experiences that are personal, engaging employed while making brands sell more and serve their customers better.

This innovative platform represents Zenvia's next generation of SaaS solutions in boring the vision of our company outlined 6 years ago. At the same time, its launch serves as a cornerstone for our CX SaaS strategy for the next 5 years. strategies centered on driving organic growth and enhancing profitability, reducing leverage, pursuing the optimal capital structure unlocking and delivering sustainable value to our shareholders.

Along with the launch of Zenvia Customer Cloud, we also made strides this quarter in streamlining our operations and becoming more efficient resulting in a notable year-over-year reduction in G&A expenses as a percentage of revenues that has been having a strong impact on our EBITDA which is the main metric that we look at in terms of measuring our profitability.

I'll now hand the call over to Shay to cover our performance in the quarter, and I'll be available for the Q&A. .

[Shay Chor, executive]

Hello, and thanks for joining us today. I would like to start the snapshot of our performance. We are happy to report solid numbers in both Q3 and 9 months of '24 with double-digit growth in top line and profitability and a strong expansion of our EBITDA year-over-year as we move to meet our guide for 24.

The results this quarter were impacted by 3 main factors: first, certain one-off temporary volumes in our CPaaS segment that were opportunistic for us in terms of revenue, cash balance and EBITDA. The flip side is that this volume comes with lower profitability in percentage terms. But at the end of the day, our goal is to generate EBITDA in reais, not in percentage, reason why we'll continue pursuing opportunities in terms of revenues. That said, we don't expect the same one-off volumes in Q4.

Second, the increase in our SaaS segment comes mainly from SMBs. The segment not only grew double digits on a year-over-year basis, but also on a sequential basis. And we see more and more SMBs adopting our platform, especially with the launch of Zenvia Customer Cloud. SMBs are the companies that will drive our growth moving forward.

And third, the performance of the enterprise portion of our SaaS segment in which we continue to see a very competitive environment with new sales below expectations and therefore, putting pressure on profitability. The stronger gross profit that we reported, coupled with the strict expense control that is in place in our company boosted our EBITDA to BRL 41 million in the third quarter, growing almost threefold compared to the same period of last year and reaching the highest quarter level over the last 3 years.

Year-to-date, EBITDA totaled BRL 98 million, up roughly 150% from the same period of last year. And if you look at the last 12 months EBITDA, it landed about BRL 135 million which is within our guidance range of BRL 120 million to BRL 140 million. As a reminder, we're talking about the normalized EBITDA that excludes earnouts and nonrecurring events.

Let's now take a closer look at performance per segment. As you can see in this slide, both Saas and CPaaS CapEx spending by double digits in both third quarter and 9 months period of '24. CPaaS revenues grew 37% and reached an all-time high of almost BRL 200 million in the quarter, mainly because of these onetime opportunities that I just mentioned in the beginning of my remarks, taking the 9 months revenues to BRL 485 million.

Our SaaS business delivered again an increase of 16% in the quarter compared to the same period of last year, the same rate we registered in the last quarter. This expansion came mainly from SMBs which is our growth engine, and therefore, is expected to gain share in our revenues next year. Sequentially, SaaS enabled 12% versus Q2. In the first 9 months of the year, our SaaS revenues grew 15% year-over-year.

Let's now take a better look at how this expansion has translated into our portfolio mix. As I mentioned in the beginning, we had a much higher participation of CPaaS in the mix of both revenue and gross profit in the period. because of the one-off factors I explained.

As we always discussed here, a higher CPaaS contribution to the revenue mix impacts our margin but I would like to highlight again that the focus here was on capturing these high volumes in CPaaS that are converted directly into EBITDA given we don't need the additional G&A to generate that revenue.

Looking ahead, we have been investing a lot on the integration of the SaaS solution, and we expect to leverage top line growth with Zenvia Customer Cloud. As we move more and more into it, integrating all the businesses to the new model on the Zenvia Customer cloud, the company becomes mostly a full SaaS model with monthly subscriptions, leveraging its leadership in terms of channels.

Here on this slide, we'll discuss in more detail the adjusted gross profit and margins of both segments in the quarter. In this Q3, we recorded BRL 102 million in consolidated adjusted gross profit basically have from each segment, BRL 50 million in SaaS and BRL 52 million from CPaaS, highlighting the boost from CPaaS of 37% this quarter. But the margins from both segments, as you know, are not similar. We recorded a margin of 58% in SaaS and 26% in CPaaS. While the CPaaS margin remained stable, the SaaS margin went down by 330 basis points year-over-year, mainly from the enterprise impact that I just explained. So the combination of higher CPaaS in the mix with a lower SaaS margin brought our consolidated adjusted gross margin down to 130 basis points, landing at 36%. Despite that, looking in the first 9 months of the year, we are still very close to the full year guidance as we can see in the next slide.

So looking at the 9 months numbers, we see that we recorded BRL 296 million in consolidated adjusted gross profit, boosted by the BRL 160 million from CPaaS, which went up 28% from the same period last year. The SaaS segment in turn contributed BRL 125 million, virtually the same amount from last year. The drop in the SaaS margins in the quarter is explained by the mix of large enterprises with lower margins that I mentioned earlier, but also coupled with increase in infrastructure costs related to the final phase of the integration of the acquired companies that we have been highlighting since the first quarter of this year.

As the CPaaS mix in revenues increased due to the one-off opportunities, consolidated adjusted gross margin for the 9 months reached 40.7%, putting us slightly below our guidance for the year. While management is never happy to see any number below guidance, we are much more focused on how revenues are translating into EBITDA, which is ultimately what will drive us to leverage the balance sheet.

So let's discuss now our G&A, which is key to generating EBITDA. We remain laser-focused on keeping costs strictly under control throughout this whole year. We are leveraging our operations as we have been growing the top line by double digits without any additional G&A, which enabled us to more than double our EBITDA in both periods.

In fact, in the year-to-date comparison, we are bringing down our G&A as a result of increased productivity. This led the G&A as a percentage of revenue ratio to decrease to 13% in 9 months from 17% in 9 months of '23, representing almost 400 basis points drop. If you look versus the same period 2022, this is a drop of 540 basis points from the 18.5% ratio we recorded 2 years ago when we first started our streamlining efforts. We are very proud to have been able to pivot the company this way, improving the productivity that is vital for this next phase of growth, as Cassio mentioned in his opening remarks.

Moving on to the next slide. Another key index that we'd like to highlight is our EBITDA minus CapEx, which we believe is a crucial metric for assessing our ability to generate cash flow from our core operations after accounting for the necessary R&D in the business. This metric not only highlights our operational efficiency, but also helps you understand how well we are positioning ourselves to deleverage, fund future growth, maintain financial flexibility and reward shareholders.

As you can see in this slide, in the first 9 months of last year, when we deducted the CapEx from our EBITDA, we still saw a negative figure, small but negative. Now when we look at these 9 months of '24, our EBITDA minus CapEx improved BRL 52 million when compared to a year ago. And we see it now positive in almost BRL 50 million. In the last 12 months, EBITDA minus CapEx was almost BRL 75 million.

Now with these improvements in cash generation in mind, let's discuss some updates on our next steps. As we just saw in the previous slide, we expect that our EBITDA will keep increasing at a faster pace than our CapEx as it has been the case for the last few quarters. And obviously, having an EBITDA that is more aligned with our capital structure will allow us to increase our investment in client acquisition, triggering an acceleration of organic growth. We have improved our leverage a lot since we resumed EBITDA to positive territory back in late Putting into numbers, we have reduced our net debt to EBITDA from that period from over 10x to 2.2x at the end of September '24. We believe that from the second semester of '25 on our cash generation will be more in line with our capital structure. Until then, we'll continue to use working capital tools as well as seeking more flexible terms in existing ops.

On the LatAm front, we have already initiated our expansion outside Brazil. While it is still in the early stages, we expect to see a positive impact to our 2025 results.

To finalize, as we approach the end of the year, we are reiterating our guidance for '24. Our tactics and focus have been and will continue to be on growing organically and generating EBITDA to keep the leverage in the company. Once again, we appreciate your continued trust as we move ahead. We are committed to building a profitable and exciting future for Zenvia.

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

[Operator]

[Operator Instructions] Our first question comes from Ramon [indiscernible], analyst sell-side UBS.

[Unknown Analyst]

Two from my side. First, could you please comment on how are you seeing competition in the SaaS segment, especially in large enterprises? And then we have seen an increase in total active customers in the quarter. How much of the net additions do you attribute to the launch of Zenvia Customer Cloud, please?

[Cassio Bobsin Machado, executive]

So starting at the beginning of the question about large enterprises and competition. We launched Zenvia Customer Cloud, mainly focused on SMBs. Although we already have customers that are enterprise customers adopt our platform. We're still the early days of that to understand how impactful will be adoption for large enterprises.

But as we move with the adoption of Zenvia Customer Cloud, we see that a better proposition we're bringing to the market is quite unique by connecting the different points of the customer journey. And that for SMBs, it makes these be the most important solution for customer relationships that these companies are using. And we are seeing that enterprises are also benefiting of that. Still early to understand how impacts would that be, but we are very excited on these first large customers adopting the platform.

In looking at the total active customers, in the quarter, yes, we're having an increase mainly because we're focusing on Zenvia Customer Cloud, as I mentioned, SMBs and we're starting to get very good traction for both new customers and heavier adoption of current customers and that goes into the last part of your question, which is about the cross-selling. We are seeing that these customers, these cohorts that are already using the Zenvia Customer Cloud, they have around 10 a higher cross-sell comparing to what we had before. As before, we had to sell each -- the second product that the customer would adopt to be like a new purchase from Zenvia.

But with Zenvia Customer Cloud, we eliminated all the bureaucracy on adopting these other products. So they are a click away from adoption. So that we're having from 10 to 12x the adoption of the cross-selling that we had before. And this is already starting to impact overall numbers. We're in the migration phase from customers of our former products, stand-alone products.

Customer Cloud. It's still in the first waves of migration and we are seeing that these customers especially the ones that come from pure CPaaS. That goes to the third part of your question. As we migrate customers from pure channel usage pure CPaaS usage to Zenvia Customer Cloud, they start using software in a couple of days. because they see the benefit of using not just the channel but all the stuff that they're able to provide for them for marketing for sales, for customer service and so forth and so on.

So that goes into like a decrease in CPaaS customer base. We're having a migration of these customers from being like pure channel customers to software customers. And that kind of address the whole strategy of Zenvia coming from CPaaS and turning into the SaaS company and Zenvia Customer Cloud is what making the -- all these happen in practical terms. That's why we're excited for the next quarters. to have more impacting numbers overall of these both new customers and migrated customers using this new platform.

[Shay Chor, executive]

Let me pick some questions here from the webcast. And then an extension of what Cassio just said. Can you share a little more details around Zenvia Customer Cloud? How is the rollout going? Anything you can share on a qualitative basis? And also if there are numbers that you can share at this stage.

I'll just be upfront here and say that we can share very little in terms of numbers as it's in very early stages. And any number we share now can be polluted by being early stages, but I guess on a qualitative basis, Cassio can help you understand where we are and how we see the evolution on these early stages of the Zenvia Customer Cloud? .

[Cassio Bobsin Machado, executive]

Sure, Ami, thanks for the question. we had a prelaunch of Zenvia Customer Cloud in March. And because we had just 2 products being combined to this new solution. And we had a very interesting rollout on this initial phase in March that helped us to fine-tune the product and prepare for the next phase. We launched in October officially, Zenvia Customer Cloud with another four products and then completing more parts of the customer journey. .

In practical terms, we had marketing campaigns in the first phase the sales process for sales reps to engage with customers on digital channels. We had that prelaunch in March. And then during, I'll say, around July, we launched the Gen AI chatbot feature, also in a prelaunch. And now in October, we launched 2 very important features. One is for ads optimization. Now we enter it the ads portion of the journey and helping companies to optimize their ad spending by understanding which customers convert the best.

And we also launched what we call [ Serve ], which is a very important part of Movidesk. The company that we acquired is now and 2022 is now part of Zenvia Customer Cloud. That was the part of launch in October. So now we have all these features from ads to marketing campaigns to sales processors to chat bot automation to customer support with ticket controls and automation, all already available for our Zenvia Customer Cloud customers. That's why we're migrating customers from these former products, introduce new unified solution.

And we -- in our road map, we expect to have the next couple of months, also the more data-driven features and AI-driven features that would use all these data that are being accumulated from all these different parts of the journey and the data that comes from the company's own systems that can combine to create more actionable insights that will help customers to nurture their relationship with their end customer stats when we expect to complete the deployment of Zenvia Customer Cloud.

And from there, we're going to evolve into agents that are going to help our customers to automate not only customer interactions, but also different processes such as churn prevention, cross-selling, ads optimization and multiple features that we're working on to deploy and will be a very unique offering for the market.

So that's a bit of a review of what we're working on, and we are launching.

[Shay Chor, executive]

So let me keep going here. And I think Cassio can answer this first part, and then I'll take the second part. So 3Q revenues were impacted by non-recurring and Q4 revenues usually have some seasonality. That said, how should we think of the quarter-over-quarter PET for CPaaS and what about SaaS?

[Cassio Bobsin Machado, executive]

Okay? So regarding CPaaS, we can expect revenue in Q4 slightly below what we had in Q3. As you said, we have done a nonrecurring volumes regarding CPaaS. So even though we have seasonality in Q4, we expect a slightly below revenue when we compare with Q3. Regarding SaaS, we're still with the path of growth, we expect that the same or a little bit better growth than we had in Q3. So the path for SaaS is the same that we see all of the year with growth. that's it.

[Shay Chor, executive]

Yes. And the second part, I'll take this one, given the volumes we're having in CPaaS, would it be fair to assume you are tracking ahead of guidance?

No, I think that we are tracking within guidance for all the metrics we are -- again, as Cassio just mentioned, there's some volatility on the CPaaS business in terms of revenues, which we don't expect to repeat in Q4. Although there is a seasonality, it's not going to be as strong as Q3. So we are comfortable at this point to reiterate the 2024 guidance that we have.

[Operator]

[Operator Instructions].

[Shay Chor, executive]

Question here for Cassio. How deep is AI embedded in the products? Are you able to charge more for heavy capabilities?

[Cassio Bobsin Machado, executive]

Sure. Awesome question. So we already have, I would say, about 6 or 7 features -- different features that are pure AI features. They go from co-piloting for sales improvement, co-piloting for customer support improvement, complete my full automation of customer experiences. We have analysis of past interactions with customers to understand their overall perception of the brand and the relationship.

We have AI being used for marketing campaigns optimization. And that's the ones I could remember. And we're working on several other features because it's very, very useful, very practical to use AI embedded in the product.

And the way that we develop business model for Zenvia Customer Cloud is that we are able to capture that by volumes on customer interactions. And that's how we expect the near future to long term monetize all these features, not by charging tokens because as we understand at some point, it's going to become commodity, but the results of that, which is how we were able to create better experiences for customers using our software. And that is powered by AI, but not charged by the same way that these AI platforms generally speaking, adopt, which is a token-based because we are not just providing an alarm engine, we are providing a complete AI solution that we use data that they use several other features on the product along with AI .

[Shay Chor, executive]

Another one here, given the expenses reduction you've been delivering, do you think at some point it could potentially impact the company's future revenue growth? .

[Cassio Bobsin Machado, executive]

Not at all, we come from a series of acquisitions, and it's pretty normal that as we find synergies, we're able to optimize our structure. As we are combining all our products into Zenvia Customer Cloud, we're also optimizing the way we sell, the way we serve our customers and that brings lots of efficiencies that can be -- that can result in us keeping a similar cost -- similar organizational structure while at the same time, we scale revenues as we're moving from a less optimized operation from the combination of acquired companies into a unified way of operating that helps us scale and avoid having to employ more people to do each part of the process as we get the benefits of integrating all of the systems and the processes and the way we interact and serve our customers. .

[Shay Chor, executive]

And I'll just add on what Cassio said, we've been doing this -- we've been streamlining our operations in the second half of '22. So it's not something that came out of the blue, and we are doing at once. So we've been planning this and we've been adjusting the operations through time.

And as Cassio mentioned, as we have simpler products and simpler processes that would naturally lead to discontinued reduction. So it's not -- we are very comfortable in the way that we've been doing this in waves.

You had a net income positive in the quarter. Can we expect more in the next quarter or next year?

Obviously, all we do is seeking to deliver value to shareholders and delivering value to shareholders will go through P&L, right? So generating net income is something we always seek. Specifically in this quarter, it's important to highlight that we had a one-off impact -- positive impact in finance income from a mark-to-market of derivatives that we have.

But even excluding that, would have had positive net income of about BRL 80 million, and that is a reflection of the good results and the positive EBITDA and the healthy results that we delivered, right? So obviously, we expect that as results to improve that they will translate into net income on the P&L, but also in EBITDA being converted into cash to help the leveraging balance sheet. So it's on us to continue delivering good results at will translate into both P&L and cash flow.

Can you elaborate about guidance for '25 in terms of free cash flow EBITDA?

Unfortunately, no, at this point, we are still looking into 2024. We still have at least a month, right Cassio, ahead of us to continue delivering results. So although we are already planning for '25, we are still much focused on continued delivery in '24. And the guidance for 2025, most likely at some point early next year.

Which stock price would be the minimum for Zenvia with regards to use the shelf offering?

We don't have a specific share price. The offering for us is viewed as an opportunistic move, so it's there. If share price and cash flow are aligned, it will make sense for us to execute on the shelf and due to we have some limitations on how we can disclose prices and volumes. But what I can tell is that it's an opportunistic move and if share price and cash flow are aligned, we'll execute on the show.

I think we are done here on the web. I don't know if there are any further questions on the phone. Yes. That's it.

[Operator]

This concludes our Q&A session. I would like to turn the conference back to Mr. Cassio Bobsin for his closing remarks. .

[Cassio Bobsin Machado, executive]

Thank you very much for all of you guys here. We're very, very excited with the results of this quarter, especially on what we're building for the future. It's an amazing experience having Zenvia Customer Cloud performing so well, and we see the trends on the numbers and we expect them to get even better in the next couple of quarters. So see you guys next time.

[Operator]

The conference has now concluded. Zenvia's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. You may now disconnect. Have a very nice day.