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Zenvia Inc. (NASDAQ:ZENV)
Q3 2021 Earnings Call
Nov 17, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to Zenvia's third quarter 2021 earnings conference call. Today's speakers are Mr. Cassio Bobsin, Zenvia's founder and CEO; and Shay Chor, investor relations officer. Please be advised that today's conference is being recorded.

[Operator instructions] Now, I would like to welcome one of your speakers for today, Mr. Cassio Bobsin, founder and CEO. Sir, the floor is yours.

Cassio Bobsin -- Founder and Chief Executive Officer

Welcome to Zenvia's Q3 earnings call. I'm Cassio Bobsin, founder and CEO of Zenvia. Today, we're going to present the key highlights of the quarter and provide you with an update of our business. I would like to start by highlighting that we delivered on what we promised investors during our IPO process in late July.

Solid revenue growth and strong gross margin expansion year over year. Shay will review with you the numbers in more detail, but I would like to highlight a very healthy revenue growth above 40% with more than 60% increase in adjusted gross profit in a four-percentage-point expansion in gross margin. We are confident in our ability to continue delivering a strong set of results in the next couple quarters. I'll tell you how in the next slides.

Here at Zenvia, we're building a long-term vision from the ground up. Let me explain a little bit more how we evolved and where we are headed. In our early days, 18 years ago, we started by enabling communications for our businesses with our end customers. We would enable our clients to send one-way messages with product offerings and services through our platform.

After for some time, we started enabling conversations for our customers. So the one-way message became two-way conversations. A good example of this is when a customer from our client can chat with a person in our chatbot for support. Today, we're moving to our next digital phase of enabling journeys that happen when the end customers of our clients are engaged in a variety of ways across their life cycle through multiple communication channels, but we are already foreseeing and preparing for our next phase, which will be focused on enabling experiences, allowing customers who experience a streamlined relationship with the brand no matter the channel or moment in time.

On their minds, everything will be perceived as a continuous conversation resulting in more valuable customer interactions and brand loyalty. Let's move to next slide to better understand it. So how to do this at Zenvia? Our unified end-to-end platform currently provides our customers with the combination of channels that enable them to talk and engage directly with customers in multiple ways. Two, enable these channels to the automated and integrated the company's processes and systems and suffer service solutions that are suited for each moment during the customer journey.

This is how we got here, but as I said, we are already evolving and this evolution is data-driven. The ability to collect data and build better performance of the end customer is becoming increasingly relevant to companies working in the customer experience as a surface segment. The SaaS for us, the main change is that data will now be at the core of our platform. By using data analytics, we can provide our clients with actionable insights, enable them to generate automated customized actions in different touchpoints of the customer journey, creating more and more personalized and seamless experiences and customers.

And here is where our M&A strategy is key as you will see in the next slide. We have been pursuing acquisitions to grow through our total lifetime. And to our IPO, we had completed eight acquisitions. In the beginning of November, we announced our first transaction after the IPO.

We acquired SenseData, a very strategic movement for us as it represents the first step into putting data in the core of our solutions. SenseData was founded only six years ago, concurred 140 clients across 13 different industry verticals, mainly in finance, retail, health, and software. Its annual recurring revenues grew by 75% in the last 12 months to approximately BRL 11 million, with an adjusted gross margin of 60% on a stand-alone basis. We estimate acquisition to be done at a model of 2.2 times EV over sales 2023 at the end of the earn-out period.

SenseData solution is based on these three remain concepts and technology. Sense Connect, this purpose of framework simplifies integration with several software platforms to connect the customer data in a fast and secure rate. Sense's quarter may feature behind SenseData success that's appropriate platform and framework to analyze data in order to generate valuable analysis about each customer's journey and actual insights. SenseData technology does enables companies to create automated communication processes based on Sense score that leads to better customer experiences and engagement.

Still on the M&A topic, I would like to provide you with a quick update on D1 integration. We've been moving fast into integrating D1 platform with their customer base already benefiting from the scale or robustness of our communication channels. At a commercial front, we'll be working together to lead the CX transformation of our enterprise customers, joining forces and expertise to move this customers base communication processes and to a journeywide implementation that is integrated and leveraged by data in AI. Finally, we are seeing a lot of opportunities to continue consolidating the market.

Our strategy will continue to sign to acquire companies that can complement our technological ecosystem and our pool of talent, and therefore, improve our value offering. I'll now pass on to Shay, who will discuss our key financial metrics in more details.

Shay Chor -- Investor Relations Officer

Thank you, Cassio. This is my first earnings call since I joined the company two months ago. I'm excited with the challenge of helping investors better understand our company. I believe we are flying below radar screen, and this is the main reason why our shares are undervalued.

We are working to change this and as Cassio mentioned, we are confident in our ability to continue delivering improved results and generating positive news flow. Before I move into the numbers, I would like to emphasize that as of Q3, we are already consolidating D1 in our results. For this quarter, we have only two months of Q1 one, so Q4 will actually be the first one with full impact of D1 acquisition. Now, moving to the results.

Our client base grew by almost 25% and in the quarter with 11.3 thousand active clients already consolidating both Sirena and D1 our base. Our strategy allows us to retain existing clients and to continue growing their usage of the platform through an up-selling and cross-selling. This directly impacts our net revenue expansion rate that reached 122% in the quarter, a 10-percentage-point increase when compared to the same period of 2020. And also, five percentage points from June 2021 when it was 117%.

These numbers do not include the one. As in this metric, we only consider clients that have been in the base for 12 months. If you were to include D1 clients, the net revenue expansion rate would have been 128% in this quarter. All these led consolidated revenues to expand 43.7% to BRL 163.7 million, accumulating BRL 422.1 million in the nine months period.

Revenues beyond SMS termination already accounted for 32% of total revenues this quarter, a sequential improvement when compared to the 22% in Q2 and double from the 16% reported in Q1 even with higher revenues. This is in line with our objective and promise of improving revenue mix to generate higher profitability and a test to the solid execution of our team. Our adjusted gross profit increased 61.5% year over year to BRL 57.8 million reflecting the solid revenue growth. In addition, as a result of the evolution of our platform, both organic and inorganic we estimate that the portion of our business that goes beyond SMS termination represented 60% of our adjusted gross profit in the Q3.

This improved mix led adjusted gross margin to improve 3.9 percentage points to 35.3%, a record high since Q1 2019, which a test for the improvement we have delivered quarter after for a while now. Zenvia had been a profitable company since the beginning of its operations. During late 2018, we realized our unit economics worked and that we had a large and untapped market opportunity ahead of us. As a result, during twenty nineteen, we decided to reinvest in our business to accelerate growth, expand our platform, and capture share in this highly fragmented market.

By design and with the full support of our board and shareholders, we have reduced our EBITDA margins in order to invest heavily in sales and marketing and R&D to accelerate our go-to-market strategy. With that said, our normalized EBITDA in the first nine months of 2021, which excludes expenses related to earn-outs was positive BRL 4.1 million. Let's move to our mid-term guidance. Given the solid set of results, we have delivered in Q3 '21, our pipeline of acquisitions and our confidence in continued delivery strong growth with high capital efficiency will reiterate our objectives for the next two to three years.

Revenue growth ranging between 30% and 35%, gross margin reaching 45% to 50%, and finally, EBITDA margins scaling back to historical levels ranging from 15% to 20%. This concludes our prepared remarks, we can now move to the Q&A session.

Questions & Answers:


Operator

We will now begin the question and answer session. [Operator instructions] OK. Then our first question comes from Vito, sell-side analyst from UBS. We are now opening the audio so that you can ask your question live.

Please go ahead.

Unknown speaker

Hi, everyone. Can you hear me?

Shay Chor -- Investor Relations Officer

Yes. Yes. We can. Go ahead.

Unknown speaker

OK. Perfect. First of all, thank you very much for taking my question. I have one question regarding margins.

In the third quarter, you have spent around 50% of revenue in G&A, and an IPO bonus of BRL 40 million, both of which impacted your margins. We would like to understand what can we expect as recurring expenses going forward and what can we expect in terms of short and long-term growth and EBITDA margin? Thank you.

Shay Chor -- Investor Relations Officer

Thanks for the question Vito. So if we look into Q3, actually, we had a total BRL 45 million in one-off expenses related to the IPO. So when we exclude that, the G&A as percentage of revenues was around 21% that compares to 23% in Q3 of 2020. So this the level of G&A as percentage of revenues should expect in this between 20%, 22% going forward.

As to EBITDA margins, as we said, we've been accelerating our spending in sales and marketing and R&D. And this will continue in the next couple of years. And that's why we have that mid-term objective, which means between two to three years of bringing EBITDA margin back to that 15% to 20% historical level that we had in the past.

Unknown speaker

Perfect, Shay. Thank you very much.

Operator

OK. Thank you for your question. [Operator instructions]

Shay Chor -- Investor Relations Officer

Roger, I have a question here on the webcast no voice, so I'll take it. Could you please disclose organic growth ex the D1 and what percentage of customers now use more than one product? I'll start with this and this has been a question that we've been getting about D1. So, in Q3, Zenvia without D1 grew revenue by 30%. And then the rest was D1.

So this gives you an idea of the organic growth that we've been delivering in Zenvia. In terms of gross profit, just to add them, in terms of gross profit just to add this gross profit expansion without D1 was 36% considering Zenvia only. And I'll let Cassio, do you want to comment on cross-selling and how much of our products -- our clients are using more than one product?

Cassio Bobsin -- Founder and Chief Executive Officer

Yes, Shay. Thank you. We unfortunately don't disclose cross-selling metrics on a quarterly basis. We expect to have that metric available in our Investor Day.

Last time we disclosed that was around fifteen percent. We are working into improving that cross-sells for the following quarters. And just to get better understanding of this third quarter, D1 accounted for around two of the three months on the period. So we didn't get impact of the whole D1 numbers on this quarter.

Shay Chor -- Investor Relations Officer

OK. I have more questions here. Have you seen any impact from weaker macro in Brazil? Are you seeing upward pressure on staff costs? And how difficult has been to hire talent especially developers?

Cassio Bobsin -- Founder and Chief Executive Officer

We're not seeing major impacts in terms of economic aspects of the countries you operate, especially Brazil. Although, we understand the market is quite dynamic on the projections of GDP for next year. We always had positive growth on the company. Even the times that we had crisis, the pressure occurring within the region.

So that's why we don't expect to this low growth considering any impact pf economic recovery in the country. And talking about talent, we keep investing and growing our talent pool and we have been working pretty well on that SaaS, we expand our headcount very important direction in the last quarter, and we expect to grow headcount according to our strategy and so we are suggesting more, sales and marketing more in R&D, of course, diluting our G&A expenses as we are expanding our revenue and our gross profit over time. We tend to get a lower pressure on the G&A, but talking about talent itself, we see that the market is hot for quality people that are looking for, but it is and we are performing pretty well and attracting the best talent for the company.

Shay Chor -- Investor Relations Officer

Roger, do you want to check if we have questions for voice?

Operator

Perfect. The next question comes from [Inaudible] buy-side analyst from Goldman Sachs. We are now opening the audio, so you can ask your question live. Victor, please go ahead.

Unknown speaker

Hi. Thanks for the question. Quick question from our side. I suppose you could estimate that from the organic growth figures, but would you have a figure for our pro forma revenue and gross profit exposure to beyond SMS termination revenue in the third quarter? Not sure if I might have missed this in the original presentation.

I had some connection issues on my end. Thank you.

Cassio Bobsin -- Founder and Chief Executive Officer

Thank you, Victor. Actually, we not disclosing pro forma for SMS termination. So it would not be that far from where it landed because actually, we are consolidating, remember we're consolidating two months of the one already. So we would not be that far.

Just to give you in terms of total revenues for you to understand, we reported BRL 163.7 million, and pro forma for D1, we would have reported 171.1. So that will be the difference in total revenue. So, we give you a sense that the difference in the revenue mix and the gross profit mix would not be that that different. Another point to help you is that gross margin we reported 35.3% and pro forma it would have been 36%.

So that gives you sense of the impact.

Unknown speaker

Thank you. And just another question from our side again. That wasn't discussed yet. Could you give us some more details on -- detailed update on how your acquisitions pipeline is looking following the acquisition of SenseData? Thank you.

Cassio Bobsin -- Founder and Chief Executive Officer

Yeah. We've been working on consolidated M&A pipeline of several partners of being working last couple of months, and we expect to have, I would say, a few occurring. So we can of course got the user proceed supplied and a way that we accelerate our strategy of evolving our portfolio. That's the main strategy that we will be working in terms of money.

And then we expect these to really add valuable solutions to our platform that would make total SaaS in terms of evolving or positioning as a consolidator obviously excellent scape across LatAm.

Unknown speaker

Very clear. Thank you very much.

Operator

Thank you, Victor, for your question.

Shay Chor -- Investor Relations Officer

So I have more questions here on the webcast. Can you please update on growth outside Brazil? This appears to be a bit slower? When should we see an acceleration and benefits of indirect channels in new geographies?

Cassio Bobsin -- Founder and Chief Executive Officer

Actually, we're seeing a very strong growth also in Brazil, perhaps we are seeing that, we are growing LatAm, but Brazil is still growing pretty strong, which actually shows that will have pretty large TAM, and will have several opportunities within the Brazil, of course, as well with LatAm. So, we've been evolving both directions benefiting from all that TAM, Brazil, and also these regions on scaling and rolling out our solutions to other countries. We're in the middle of that as some of these products that we acquired [Inaudible], they were solely focused on Brazil. A part of the integration is to roll off those solutions to become global solutions.

So that's why we expect that to be further accelerated in the future.

Shay Chor -- Investor Relations Officer

Next one is, can you please comment a bit on the competitive landscape? And what is the impact on Zenvia's business directly and indirectly if any from changes in Apple by the tracking upcoming changes at Google, etc.?

Cassio Bobsin -- Founder and Chief Executive Officer

Yeah. Looking at the big track ecosystem, we are not affected at all. By these changes in at all as we work mainly with direct communication channels, which means we're not any form of depend of any media, or at or display at or that kind of Google and Apple market decisions. So it doesn't impact our business at all.

I'm looking at the competitive landscape, we're seeing that companies are really going in a very strong way for these conversational channels. They're trying to become less dependent on these closed ecosystems where you don't see who the customer is, and for ecosystem that are more open then you can actually talk directly to another customer. They make that relationship happen, and that's why we're developing our platform to become the CX communications platform that will connect the dots along the journey, enabling companies to really create better express to this communication channel. So that SaaS may compete mostly with Niche SaaS offerings that are usually spread well for the regions we operate.

And as we've been growing the platforms stating it, we are seeing that the value proposition were building is very competitive with against this small niche players, and we also face sometimes competition from global more enterprise-focused solutions, more enterprise-focused solutions than when we compete with them, we are much close efficient for local original companies, which means they can have the same technologies and benefits with us with a much better price, way to customize and so evolve adoption of further their processes. In a way that opens up a really big opportunity for us to consolidate that and also answer enterprise customers with solutions that are much more interesting than they find and there's global players.

Shay Chor -- Investor Relations Officer

So next question comes from Christian [Inaudible]. Can you comment on the drivers for the net revenue expansion? It increased 10 percentage points year over year. So I'd like to understand better what's behind that growth?

Cassio Bobsin -- Founder and Chief Executive Officer

Yeah. I'll say that major aspect is that we keep churn low. We have everything that we do grow it and that takes a leap, adds composes on NRR. We see solutions based on some apps are still growing.

We see that these new solutions are more for conversational basis, conversation-based communications with WhatsApp and Instagram and Web chat. They are growing pretty strongly. And as we are also entering that journey part of our strategy, we're happy -- we're helping connect data and create very interesting ways to engage end customer. This is creating a very powerful way to get deeper into these companies.

So we are improving our presence on the enterprise customers that's driving a lot of these at [Inaudible] and we are getting lots of efficiencies retention improving retention and adoption of also from FMB's. So that's -- I -- basically combined a combination of all these forces that are giving us healthy [Inaudible]. And hence we expect these on NRR to get to be -- if an improved in the future as we will roll-out of these cross-selling tallies but will unlock all the potential that we have in terms of the platform robustness and complete submission.

Shay Chor -- Investor Relations Officer

One more here. Cassio, in the earnings release, you mentioned Instagram as a new channel, can you elaborate more on that and tell us where you see that going?

Cassio Bobsin -- Founder and Chief Executive Officer

Yeah. Definitely. As we're positioning our solutions as movie channel solutions. The addition of Instagram it's going pretty smoothly to our customers.

We're helping them to set up the channel with the current solutions they already have, which is giving us better lock-in. It's also creating a stronger, a new stream of conversations with customers as these companies open -- every time a company opens up, and new commission and channel with customers that day are already using. This gives us more usage of the platform. And that's the path that is occurring with Instagram as we rolled out a couple of months ago.

We already have a couple hundred customers using actively this channel, and expect it to be a massive channel, as SMS and WhatsApp on the future.

Shay Chor -- Investor Relations Officer

Next question here is, I think you mentioned that in your remarks, but I missed the number, can you repeat what was the NRR pro forma? So, yes, as we commented in the call, the NRR, net revenue expansion rate pro forma for D1 was 128 versus 122 reported without D1. Roger, do you want to report to see if we have more questions?

Operator

Let me check right here. [Operator instructions] OK. Then 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 -- Founder and Chief Executive Officer

Thank you very much, everybody, for joining us this Q&A session and our webcast. It is being a massive trajectory has been -- it is a public traded company last couple of months. And we are very excited about everything that's been delivering and the plans that we have, the vision that's becoming a reality. We expect the next couple of months to engage again with you guys to better explain and give you another milestone off that long-term strategy.

So thank you very much, everybody.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Cassio Bobsin -- Founder and Chief Executive Officer

Shay Chor -- Investor Relations Officer

Unknown speaker

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