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Operator: Good morning and thank you for standing by. Welcome to Zenvia’s Q2 2023 Earnings Conference Call. Today’s speakers are Mr. Cassio Bobsin, Zenvia’s Founder and CEO; and Mr. Shay Chor, CFO and Investor Relations Officer. Please be advised that today’s conference is being recorded, and a replay will be available at the company’s IR website, where you can also access today’s presentation. At this time all participants’ are in listen-only mode. After the prepared remarks there will be a question-and-answer session. [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: Hello, everyone. And thank you for joining us at Zenvia’s second quarter ‘23 earnings call. I’m Cassio Bobsin, Founder and CEO. Thank you all for being with us today. Our results for the second quarter showed stability and consistency for Zenvia as we resolved our funding gap, while managing the correct balance of revenue growth and profitability. We’re making good progress integrating systems and platforms, allowing us to begin capitalizing on cross-selling opportunities such as selling bundled packages of certain services, which is already showing positive early results. We’re very excited by the ongoing evolution of our platform and its potential. And we’re continuing to leverage the massive generative AI opportunity that is quickly changing our industry.

In the second quarter, we unveiled two AI power tools to enhance the customer journey, including Zenvia Understand, which empowers customer support representatives with easy-to-use platform that delivers an automated report with quantitative analysis of customers’ interactions and Zenvia chatbots, which leverage AI to deliver efficient and humanized support. We are seeing every day how AI can bring transformative results to our clients. Through personalized expenses, predictive analysis, and superior customer understanding, our AI-powered solutions directly fuel our clients’ businesses. We are in a new era, we’re proactive is the new reactive. And with our SaaS platform, our clients are making customer loyalty and succession a standard, adding aspiration.

I’m excited to share with you our vision moving forward, which we are calling One Zenvia and that we have been discussing internally for a while now. One Zenvia is about creating a new world of experiences through an integrated platform, allowing us to continue our focus on capturing synergies and improving the value proposition of our platform. The One Zenvia vision is based on uniting the three most important factors in customer experience: a fluid experience, an engaging experience, and a personal experience. We will push fluid experiences by selling our products in a suite format, allowing our customers to pick and choose, which products best fit their needs and thereby expanding our position, while operating a large volume with ease. Our existing strategy is already aligned with the suite format.

We have been evolving as an integrated SaaS platform. We’ll continue to build engaging experiences by leveraging AI, which as I just explained, is rapidly changing the customer experience arena. Not only will AI continue to enhance the customer journey, but also improve our internal processes, making us more efficient. And lastly, we will leverage our competitive edge of deep understanding of customers and their behavior to provide our clients with increasingly personalized experiences through the construction of a customer data platform, or CDP. This will allow us to deepen our relationships with clients by expanding the integration of our platform with internal systems from our clients. To progress towards our vision of One Zenvia in the upcoming quarters, we’re concentrated on delivering key initiatives from our strategic road map, including structuring projects that will accelerate product bundling and cross-selling.

We are very much waited by our focus towards One Zenvia and look forward to sharing more information with you in the coming months. Now I’ll hand over to Shay to cover our performance in the second quarter.

Shay Chor: Thank you, Cassio. Hello, everyone, and thanks for being with us today. Let’s start on slide five. We are happy to report that in the second quarter of ’23, we focused on resolving our funding gap for the year, while managing the right balance between revenue growth and profitability. In finding an operation within that balance, we’re able to deliver stronger margins across business lines, which led to over 9% year-over-year growth in gross profit and an EBITDA of BRL15 million, marking four quarters in a row of positive EBITDA. And we did this despite the challenging economic environment, and we continue to successfully adapt and to navigate. Total revenues dropped 5% year-over-year in the quarter as a result of our focus on maintaining a profitable CPaaS business.

However, we were able to resume sequential top line growth with net revenue increasing almost 8%, when compared to Q1 ‘23. This better performance is explained by the recovery of volumes with certain large CPaaS customers, and we expect this trend to continue in the second-half of the year, especially given the easier comps from lower volumes in H2 2022. The 9% increase in gross profit added nearly 6 percentage points to our adjusted gross margin, which reached 44%, attesting to our full commitment in path toward profitability. Let’s take a look at our financials for the first-half of ‘23. Our performance in the first-half of ‘23 largely reflects the same trends that we saw for the second quarter with solid margins across business lines, leading to gross profit growth of nearly 23% year-over-year and gross margin expanding nearly 12 percentage points to 47.4%.

It is important to highlight here that H1 ‘22 had consolidated only two months of Movidesk. EBITDA in the first-half of 203 was BRL39 million, up from negative BRL25 million in the first-half of ‘22, a delta of BRL64 million. Our stronger EBITDA and better working capital management led to solid operating cash flow of BRL118 million, and both are key in solving the funding gap for this year. Now let’s compare the second quarter of ‘23 to the first quarter of the year, which shows our progress in the first-half of the year. Here on this slide, you can see that sequentially, we grew revenues by 7.7%, driven mainly by recovery in profitable SMS volumes from some of our large enterprise clients. Our SaaS business when excluding consulting to large enterprises, grew 2% quarter-over-quarter.

It is always important to remind you that CPaaS is a mature business, and our strategy is to have it funding the expansion of our SaaS business. This is exactly what happened this quarter. Let’s take a deeper look and examine how which of our business is contributing to profitability. On this slide, you can see the breakdown of our gross profit and margin mix by SaaS and CPaaS for the second quarter of ’23, compared to the same period of last year. Second quarter was a challenging one in our SaaS business, especially related to large enterprise clients that use our consulting services. As the sales cycle is longer for these clients, we are still seeing impacts of the uncertainties we lived in the macro scenario in Brazil in the first months of the year.

As the economy starts to improve, we are seeing early signs of improvement in our pipeline for large enterprise clients and expect to report better figures in the coming quarters. In terms of profitability metrics, SaaS gross profit for the quarter went up 1.7% year-over-year to BRL42 million from BRL41 million, translating to a gross margin of 62.2%. When looking at the six month figures, our SaaS gross profit went up 24.6%, mostly from revenue growth and the consolidation of Movidesk. Our CPaaS business continues to demonstrate its potential to grow with increased margin and generate cash, allowing us to invest in innovative products to escalate the SaaS business. The CPaaS business delivered a solid 18% increase in gross profit, when compared to the second quarter of ‘22, reaching a gross margin of 32%, up almost 8 percentage points.

Let’s now look at the same data, but comparing the first-half of ‘23 to the first-half of ‘22. When we compare the first half of ’23 to the first-half of ’22, we see similar trends. We can see solid performances in both businesses with increased margins, meaning our focus on profitability is paying off. Our SaaS business reached BRL88 million in gross profit in the first-half of the year, a 20% increase, compared to the first-half of ’22 and reaching a gross margin of 65%, which implies a 3 percentage point expansion, compared to the first-half of ’22. CPaaS in turn delivered a solid 21% increase in gross profit when compared to the first-half of ‘22, reaching a gross margin of 37%, up roughly 12 percentage points. Let’s now look at this data in terms of weighing our financial metrics.

Our SaaS business continues to gain momentum in annual recurring revenue, totaling almost BRL240 million. As I mentioned previously, the challenging environment negatively impacted our net revenue expansion, which totaled 116%, compared to 120% in Q2 ‘22. Our SaaS services represented 35% of the total revenue as we had a boost in CPaaS revenues. In terms of gross profit, we had a 50-50 split this quarter. Let’s now move to the next slide on our EBITDA evolution. As you can see in this slide, sequentially, our EBITDA declined to BRL15 million from BRL24 million in Q1. While we expected some increase in infrastructure costs related to renewed suppliers’ contracts, the higher mix of CPaaS in revenues combined with nonrecurring costs related to severance costs and slightly higher provisions, led to some pressure in EBITDA this quarter.

Despite that, we delivered a solid BRL39 million EBITDA in the first-half of the year. Moreover, as you can see in the next slide, we have now delivered four consecutive quarters with EBITDA in positive territory. This is a direct result of the decision to pivot Zenvia a SaaS company and focus on improving profitability. It has not been easy, particularly given the complex macro environment. But as you can see, our strategy is paying off. Our trailing 12-months EBITDA is totaling BRL72 million, which makes us confident in reiterating our EBITDA guidance range for this year. Now we get to the most important slide of this quarter as it shows that we have been able to convert EBITDA into cash and solve our funding gap for 2023. This is an important milestone for us that attests to all the hard work of our humans [Indiscernible] to grow profitability and a lot of other initiatives we undertook to close the gap, coupled with extended earnout payments and stricter treasury policies.

While EBITDA minus CapEx was ready enough to generate a positive BRL13.6 million, total operating cash flow reached BRL118 million as a result of better working capital management, especially due to higher anticipation from clients and renegotiation with SMS providers to more flexible payment terms. This working capital improvement and strong operating cash flow allow us to pay down debt and solve our funding gap for 2023, putting us in a better position to continue deleveraging balance sheet and invest in new projects. To finish, I would just like to reiterate the guidance we previously set for 2023. On the revenue side, we are aiming at the low end of the guidance, while for EBITDA, we are confident to deliver close to the top end of the range.

Given the positive trend we are seeing, we are confident in our ability to deliver the solid EBITDA in 2023, which puts us on track to deliver the 15% EBITDA margin, mid- to long-term level we presented during our 2022 Investor Day. With this, we conclude our prepared remarks, and we are ready to take your questions.

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Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Lucas Chaves, analyst sell-side of Luca Web. We’re now opening the audio, so that you can ask your question live. Please go ahead.

Lucas Chaves: So just — Lucas from UBS BB here. So two things — two questions from our side. How should we read the focus on large clients going into the second-half of the year? And at that time, how do you see especially the considering part of enterprises? And how do you see these large clients impact on margins on the second-half?

Cassio Bobsin: Thank you, Lucas, for the question. We always keep a very strong profile of large customers, and we are seeing that we have more like environment — a market environment that is not like pushing growth as a trend, we’re able to bring new projects to these customers. And hence, we expect to grow on the large customers, even though the margins on large customers are not as high as the margins from small customers. That’s why we counterbalance growth on large customers with a continuous growth of the long-tail base, which brings margins which kind of balance this margin profile, so we can get the best of both because large customers bring lots of revenue and small customers are not so much of a revenue, but they counterbalance margins, getting us a better profile.

And we are seeing these large customers getting more adoption of the whole portfolio that we launched in the last couple of quarters through acquisitions and R&D. So coming from a higher presence of CPaaS and large customers, we are now getting more presence of our SaaS solutions on these large customers, which we expect in the next couple of quarters to increase margins for large customers overall. So that’s why we’ve been investing into integrating the SaaS solutions into the whole — on the core of the platform, so we can migrate customers from pure channel usage, coming from CPaaS to more software-based usage of our platform, which, of course, brings us the SaaS kind — SaaS-like margins that we have, which, of course, is good for the whole picture.

And especially by creating more locking for these large customers as we go into more deep adoption of our platform, we’re able to not only get revenues, but also sustained those margins over time.

Lucas Chaves: That is very clear. Many thanks.

Shay Chor: Let me get some questions here from the system. Can you comment more on the CPaaS competitive environment? And if the improvement is sustainable moving forward?

Cassio Bobsin: Sure. We see that CPaaS industry and CPaaS end market is a more competitive market than SaaS. But as we have a very strong position on the regional market, this is bringing us lots of strength to compete better in our — than other players in the market, especially global companies that try to address the same opportunity. As we became, over time, the market leaders on that space, we are now leveraging that position and making that pace of growth that we’re able to track over the course of this year to be sustainable over the mid to long-term as we’re able to achieve better negotiations with carriers, which brings us a cost advantage. Hence, we are able to position ourselves with — especially with big customers, with the large purchases of messaging, on the market, we’re able to position ourselves as a company that is better able to achieve a better pricing framework in order to capture the majority of this demand.

So we expect this to continue going forward.

Shay Chor: Thanks, Cassio. One — easy one for you, Cassio. What do you see the company’s stock looking like in five years?

Cassio Bobsin: I’m not sure what I am able to tell on that sense. I don’t have a lawyer by my side. But as we have been working to view the long-term vision, and we are starting to get the first benefits of this movement of building a very strong SaaS layer comprised of solutions from different parts of the customer journey that are now being integrated, we are starting to get lots of traction on the cross-sell and the bundling of the solutions. And in the next couple of quarters, we’re going to see the effects of that. So as we capture these — all those investments over the last two, three years, I would say, beginning Q3, Q4 this year, but fully on 2024 and on, we expect that the next five years would look awesome in that aspect of getting all the results of this strategy, which is a long-term strategy that will become very clear for the market that we are building Zenvia to become the leader in customer experiences, software.

And that’s why we understand that there is a very good opportunity for long-term investors to capture that over time.

Shay Chor: Another one here. Congrats on solving the funding gap for ’23. How do you see this moving on for ’24? So as we’ve been working hard to deliver strong EBITDA and cash flow, it puts us in a better situation than we were a couple of months ago. We negotiated with banks and funding alternatives. So we are very confident that by continuing to deliver the strong results, we’ll be able to solve the funding gap not only for ’24, but the entire funding gap of the company, mainly arising from the earnout structure that we have. So we are confident that we’ll come up with good news for our stakeholders on this front. But we don’t — as of now, we feel that we are in a much better situation than we were a couple of months ago.

Operator: [Operator Instructions]

Shay Chor: I’ll continue here. In order to meet the 2022 revenue guidance, you would need relatively high revenue growth in H2. How is your visibility on achieving this? Caio, do you want to take this?

Caio Figueiredo: Yes, of course, of course. So as Shay said, we are aiming on the low part of the guidance for revenue. For CPaaS business, we have a seasonality of the business. In Q4, we had return on revenue due to Black Friday and Christmas. So that gives us more room for growth in the second-half of the year. So that’s why you’re going to see a strong growth when comparing to the first-half. And for SaaS business, we — as also Shay already said, we have — we’re already seeing the pipeline for large enterprise getting stronger. And also, you can see in our results, our number of clients for SaaS start to — had a strong growth. So as we start small in their business, and we have a strong revenue expansion, we are confident that we can deliver the growth that we need in order to reach the low part of the guidance in terms of revenue.

Shay Chor: Thanks, Caio. Cassio, can you give more color on the One Zenvia that you highlighted in your opening remarks?

Cassio Bobsin: Sure. What we’ve been doing the last — strategically looking at the past three years is building our SaaS layer. And that movement was a combination of a stronger investment on R&D and also some acquisitions that we did on companies that had complementary SaaS offerings that are now part of our portfolio. But of course, doing so, created a certain complexity in terms of how we offer those products to our customers and how we operate the company internally. So part of the integration process that we’ve been doing in the last couple of quarters started with the corporate infrastructure and organizational chart and basic process integration and — which are pretty much concluded. And now we’re beginning to combine all these products into a single suite.

So that’s what we are aiming at to provide over the last — over the next couple of quarters. So that’s doing — that’s been — we’ve been working on that to make it available on Q1 and Q2 next year. And part of that was that we’re calling it One Zenvia. It considers all of the projects that are being executed to make that happen. So that’s a combination of integration of corporate systems, integration of the billing systems, integration of the products, user interface and user experience, unification of business model. So everything that we’ve been working on over the last couple of quarters, and we will continue so sell in the next couple of months. So we’re able to deliver that a unified offer for our customers. And we are calling that movement of doing all these execution be synchronized internally, so we can provide value for our customers in a way that makes a lot of — a fact — a lot of impact on the market being almost — pretty much a unique offering for customers in the region.

We’re calling that movement One Zenviaon. So it’s a combination of all of these projects being executed to provide a unified platform for our customers.

Shay Chor: Can you comment on how is the large corporate interest on AI-driven solution evolving? Are they demanding more solutions that are AI based? How does this impact your pricing strategy?

Cassio Bobsin: Yes, sure. We are seeing a lot of demand from companies to — first, it’s more of a broad search for how they can use generative AI on their processes. What we launched in the last couple of months are different features that boost these company’s productivity, especially from sales agents or customer service agents to have like pre-written responses with their customers based on customer history and the kind of demand that kind of inquiry coming from customers. So this is already available on our products. And we’re evolving some also around understanding what are the customers’ expectations, combining not only what the customer is saying, but also the behavior of the customer around these communications and other data sources that we have accessed from this company.

So we’re providing these combined insights based on this customer history. And we are seeing — and now we have all these customers testing and some of them going into prediction on these features that use AI. In terms of how we monetize that, we are seeing that although some companies are building some extra layers of charging customers for that, we’re seeing that instead of building a specific modules for AI, we are putting AI in the core of the platform. So this will be part of — all of our customers will have access to these features over time as we are rolling that out for all the customers. As we consider this, this will be something that we — will be like a basic requirement for companies that are looking for software that will improve their sales or improve their customer service.

That’s why we’re merging all these initiatives into the core of our SaaS offerings instead of trying to make that accessible to just one or two customers or making that available at the core. So we expect this to differentiate the whole platform considering that most competitors are still not doing that kind of approach. They’re mostly testing. We already entered into prediction and making that available to all for our customers.

Shay Chor: Another one here. Can you comment on the difference between acquiring new clients in SaaS and the revenue that didn’t grow in the same pace? Caio?

Caio Figueiredo: Yes, of course. So what we saw is a strong growth in number of clients special income to our solution traction. And also, we can see strong growth in conversion and service. And as we said, we start small in small use cases, especially in the client. Then when they see result, we start to grow with more use cases or more seeds. And that’s why our net revenue expansion for the clients that are longer than 12-months is close to 120%. So as we see the clients start to use our solutions, then they learn. We help them learn. We help them using more use cases inside their business, so they start to grow revenue. That’s why we see first the number of clients growing, then the revenue, you keep the pace up for the next quarters.

Shay Chor: Can you comment the risk of delisting from NASDAQ, due to the efficiency on minimum bid price? Are you confident to revert it? Yes, we are confident we’ll be able to revert it without needing any technical solution. It’s on us to continue delivering strong results. It’s on us to be able to solve the funding gap once and for all. And that, in our opinion, will be the most important single catalyst for share price. So we are confident we’ll be able to revert it without the need of any technical solutions such as reverse spilt. Those are the questions we have here. And Hugo, can you report to see if there are any further questions.

Operator: [Operator Instructions] Please, do you have any further questions. Shay, there’s a question here by Gabriel [Indiscernible]. Can you please read?

Shay Chor: There are BRL94 million in bank debt to be paid in one year, plus BRL150 million of advance of clients, plus BRL122 million of earn-out to be paid with only BRL142 million on cash and BRL27 million of adjusted EBITDA, how do you plan to solve the one year funding gap? So again, the BRL150 million you see advances from clients is that contract we have with — the contract of revenue [Indiscernible]. That contract is in final stages of renegotiations for 24-months, which will put us in a very good situation of only needing to pay when we are generating enough cash for that. Our EBITDA, I’m not sure that I agree with you, Gabriel, on the BRL27 million adjusted, because this year is going to be between BRL70 million and BRL90 million.

Next year is going to be probably BRL120 million, BRL130 million. So we are confident with that. And obviously, by generating enough cash and where we are with EBITDA now, it puts us in a good situation discussing with the banks for rolling the debt for longer term and longer structure that will ease the payments in the next 24 to 36 months. So we are able to pay all those liabilities when the company is generating higher EBITDA and obviously, more cash.

Operator: So this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Cassio Bobsin for his closing remarks.

Cassio Bobsin: Thank you very much, everybody, for joining our earnings call. We are very excited with the year going forward, especially that we are aiming to achieve our guidance for the year. Not only that, but looking into the future, we are very happy with the path that we have and the opportunity that we have to become a very unique offering for our customers by providing a unified suite of customer experience SaaS, which will become a very strong competitor in the field by bringing lots of value for customers and connecting all of us along the journey. That’s our purpose. That’s what we’re building for the future, and we are very happy to be on track of that. So thank you very much, and see you 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 nice day.