Zenvia Inc. (ZENV) Q4 2021 Earnings Call Transcript

Zenvia Inc. (ZENV 11.80%)
Q4 2021 Earnings Call
Mar 17, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by. Welcome to Zenvia's fourth 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, 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 your speakers for today, Mr. Cassio Bobsin, founder and CEO. Sir, the floor is yours.

Cassio Bobsin -- Founder and Chief Executive Officer

Hello, everyone, and welcome to Zenvia's Q4 and full year 2021 earnings call. I'm Cassio Bobsin, founder and CEO. Today, we're going to present the key highlights of the period and provide you with an update on our business. Let's start at Slide 4.

Q4 was a very strong quarter that closed an excellent 2021 for Zenvia. We delivered again on what we promised investors during our process solid revenue growth and strong gross margin expansion year over year. Revenue went up 46% in Q4 '21 compared to Q4 '20 and 42.5% in the full year. While G1 and since date acquisitions contributed to this total, we highlight our solid organic growth of 32.8% in '21.

This is a direct result of our client base going up 25% to almost 12,000 customers and our rent revenue expansion reaching 122%, up by almost eight percentage points from last year. Adjusted gross profit went up 147% in Q4 and 78% in '21 to BRL 198 million. Adjusted gross margin was 32.6% in Q4, adding 13.3 percentage points and 32.3% in the year, adding 6.4 percentage points. We've been building a long-term vision from the ground up.

We spent the first years mainly focused on evolving one-way communication and becoming the latter of mobile services and as mass push in Brazil. It was only in the last couple of years that we started our transformation to become a SaaS company focused on customer experiences, aiming to provide brands with a unique platform for unified end-to-end CX communication in Latin America. We are currently in the 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 channels that are enabled by our communications platform. But we already foresee and prepare for a next phase which will be focused on enabling experiences, allowing end customers to experience some streamlined relationship with the brand, the or, and time.

Latin America has enormous growth potential as it is in the early stages of digital transformation and adoption of technology, especially in the small and medium companies. And this evolution will be driven by using channel engagement solutions and data analytics, we can provide our clients with actionable insights enable them to generate automated customized actions and different touchpoints of the customer journey, creating more and more personalized and seamless experiences to add customers. So let's take a closer look at how we have been evolving our value offering to clients and customers. What we already delivered in '21 and where we are headed moving forward.

'21 was a year of important milestones for us from brand positioning to new products to M&A, and obviously the year of our IPO. During the year, we repositioned our brand and evolved our culture to align the companies' ambitions and long-term vision with our beliefs and behaviors, making sure we recognize the value of our humans and maximize value to our stakeholders. Combination of these two elements is key to pave the way for us to achieve our goal of becoming a global platform that empowers companies to create a new world of experiences. Our internationalization plans were implemented with the acquisition of in the second half of '20 and the launch of our operations in Mexico.

In '21, international revenues already represented roughly 6% of total. To improve our CPaaS offering, we have launched new products such as trusted SMS and also added new channels such as RCS and Instagram API. We were very active in the last three years in M&A as we have completed five acquisitions that are effectively transforming our company. Our M&A strategy involved in acquiring companies that complemented our technological system, added solutions, new geographies, and improve talent.

Integration of these companies will radically transform our value offer to clients in the short and medium terms on to increase our client base and net revenue expansion. In '21, we implemented the integration of with full duration achieved now in Q1 '22. We're also working together with team to map and understand the synergies, which led us to decide accelerating integration. Since that integration is on track with back-office activities and structures are already fully integrated.

plays an important role as it changes the core of our platform buying data, analytics, and AI. As to Movidesk, we expect to close the transaction now in the second quarter. The best way for us to understand the fact of these integrations is by putting ourselves in the client's shoes. We've been doing this by incorporating data and Movidesk Solutions into our own customer service and implementing changes to ultimately improve our very own customer experience.

It's already had tangible impact in the onboarding of new clients, for example. In the sense, we're happy to report that received an important permission with the in January. This recognition was granted to 25 companies in Brazil, and it means that our clients recognize that we provided them the best customer experience. I would like to share with you three different cases that how we can help brands.

One of the largest fashion retailers in Brazil started relationship with us with needed an SMS broker. The relationship team involved, and they started using our conversational platform. The means their trust advisor and provider for end-to-end solutions. Through strategically designed journeys, they were able to use Whatsapp, which enables their salespeople to reach out to customers as soon as the pandemic lockdowns started to offer products.

After 90 days of lockdown, they have already reached 75% of revenues through online and Whatsapp sales. One of Brazil's unicorns, a well-known real estate platform is a automated journey through Whatsapp to rationalize the loco real estate market facilitating deals among sellers, buyers and renders. Zenvia worked closely with them to understand their business needs and evolve the product according to the market requirements. Through our vice of customer program, we brought our team closer to our R&D and product teams, and were able to jointly build a product road map.

The solutions help them record improved performance. [Inaudible], one of the largest education conglomerates in Brazil, is the products to provide self-service solutions to their students who no longer need to interact with human agents to address most of their needs. This allowed to gain 40% in productivity in their customer care, releasing their agents to support a broader number of students who indeed require human interaction. And what's even better, the level of section from students with journey is totally aligned with the ones held by human agents.

Finally, our IPO in July of '21 was a special occasion when we saw the market welcome our investment thesis. And that's what we have been doing since to experiencing and preparing it for the next level, our customer experiences in Latin America and globally. Looking ahead, we are now at an inflection point in our expansion route. '22 will be the year when we lay out the foundations for the profitable growth ahead, accelerating the integration of all businesses into one powerful platform and deploying a new go-to-market strategy to provide the best SaaS experiences for brands allowing them to offer an pro end customer journey.

In released in mid-February, our decision to accelerate D1 integration as we have been seeing strong demand for highly customized end-to-end customer journey selections. We're ready to speed up both platforms and team integration to better serve our enterprise clients. Our goal is to move these customers from base communication processes into a journeywide implementation integrated and leveraged by data and AI, all in one single platform. We expect to extract several synergies from these integrations that will allow us to offer a much more comprehensive suite of product services for the brands that want to improve their customer journeys.

As you can see, all we do at evolving our value offering is focusing on generating value to the ad customer. This is how in being our priority, and I dare to say this is the main differential between us and our peers in the region. Everything we do at Zenvia has the customer first. This may seem pretty obvious, but it's not.

We analyze every step of the customer journeys, which will allow us to transform journeys into x versus benefiting them the brands, and ultimately us. We combine requiring with usage-based revenue models that allows us to grow with our customers. We initially adopt a land and expand strategy in which we introduced our platform based on one simple use case and then developed the customer relationship over time by upselling and cross-selling. That's the main reason why our focus for '22 will be connecting our SaaS products with our platform core in order to create a unified end-to-end experience.

This will allow our clients to further engage with our platform, leveraging adoption of multiple use cases that covers different parts of their customer journeys. We believe we're now fairly well-positioned to do what we do best, enable amazing customer experiences for our current and new clients. Very proud of the results we achieved in '21 and excited about the prospects for 2Q. We expect to keep the strong pace of growth in '22 as we see increasing demand for our services and a lot of opportunity for growth.

We're focused on integrating and launching new products and services that will help us pursue even more substantial organic growth in '22. I will now pass on to Shay, who will discuss our key financial metrics in more detail and will be available for the Q&A.

Shay Chor -- Investor Relations

Thank you, Cassio. Hello, everyone. Thanks for joining us for today's call. Let me share with you some thoughts on our results.

The combination of organic growth, solid client retention and acquisitions boosted our revenues in the year. Our client base went up 25% to almost 12,000 clients. Our net revenue retention rate ended the year at 122%, up almost eight percentage points from last year. In the chart on the top right, you can also see the contribution of organic growth and acquisitions of our revenue.

D1 and Sensedata contributed BRL 41.5 million to the consolidated revenue, while BRL 141 million were organic, representing a 33% growth. Another important highlight is the quality of our revenues. Out of the total revenues from the SMS termination were 35% in the year. But if you look at Q4 '21 alone, it is already over 40%.

We are very proud to see the pace of this transformation as only two years ago, most of our revenues were from SMS termination. Even within '21, if we look into Q1, we started the year with only 16% beyond SMS termination. For us, this is an amazing indicator that we are moving in the right direction. The increase in revenues was also a profitable one, and this is important because we promised this during our IPO.

Adjusted gross profit increased 147% when we compare Q4 '21 to Q4 '20, with the adjusted gross margin expanding a solid 13.3 percentage points to almost 33%. In the year, adjusted gross profit increased 78% to almost BRL 200 million with the adjusted gross margin expanding 6.4 percentage points to 32.3%. It is important to highlight that this improved revenue mix helps soften the Q4 seasonal impact of higher SMS volumes over profitability, mainly related to Black Friday and Christmas. As you can see in the chart at the right, 77% of our adjusted gross profit in '21 comes from beyond SMS termination.

And this is a direct result of our diversification strategy and recent acquisitions and as we move more and more to become a SaaS company. To finalize, we are introducing our guidance for the fiscal year '22. As Cassio pointed out in his remarks, '22 will be the year where we lay the foundations for the profitable growth ahead. We expect our revenues to be within the range of BRL 875 million to BRL 925 million, representing a year-over-year growth of 43% to 51% with organic growth standing between 32% to 34%.

We also expect adjusted gross margin to be within the 35% to 36% range, representing a year-over-year expansion of 2.7 to 3.7 percentage points. This concludes our prepared remarks. We can now move to the Q&A session.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from [Inaudible], sell-side analyst from UBS BB. [Inaudible], we are now opening the audio so that you can ask your question live. Please go ahead.

Unknown speaker

Hi, guys. Can you hear me well?

Shay Chor -- Investor Relations

Yes. Yes, we can.

Unknown speaker

All right. So thanks for the call and thanks for taking my question here. I have a question on the revenue break down or it's really positive that you guys grew SMS, non-SMS revenues to 35% during the full year. We're trying to assess a shorter dynamics of it.

How is the break you could give more specifics on the breakdown 4Q 2021? And what do we expect for the upcoming quarters? Thanks.

Shay Chor -- Investor Relations

Thanks for your question. Specifically, in Q4, revenues from -- beyond the SMS were 41% as you can see in our presentation. I'll let Cassio discuss the trends.

Cassio Bobsin -- Founder and Chief Executive Officer

[Inaudible], we're seeing this continuous growth for solutions that were being launching and also the ones that come from acquisitions. So as this layer of solutions that drive different parts of the platform are being leveraged we're seeing this at a higher pace of the SMS revenues. We're seeing us release percentage of beyond SMS growing up on a quarterly basis. Hence, we expect that in 2022 we will keep the same kind of dynamics.

Unknown speaker

Got it. Super clear. Thank you.

Operator

Thanks for your question, [Inaudible]. And now the next question comes from Enrico Trotta, sell-side analysts from Itau BBA. So we are now opening the audio so that you can ask your question line. Please go ahead.

Enrico Trotta -- Itau BBA -- Analyst

Good morning, guys. Can you hear me well?

Shay Chor -- Investor Relations

Yep. Yep. Go ahead.

Enrico Trotta -- Itau BBA -- Analyst

Hi, Cassio. Hi, Shay. Two quick questions here. One -- also again on the share here of the beyond SMS termination in the revenue mix.

We know that, of course, you have been increasing these numbers as you mentioned, 41% in the Q4. So it has been growing consistently. Also, of course, you have the acquisitions. But we know that in the 4Q, you have a seasonality effect, as you guys mentioned, on the SMS, right? So if you were to adjust, I don't know if you have this kind of pro forma number.

But if you adjust by the seasonality effect of the Q4, what would be the share of the beyond SMS termination. So this will be my first question. And the second question, I don't know if you could comment a little bit about the cross-selling opportunities, the cross-selling evolution hereafter the more profitable solution, the API-based solutions. So if you could open what percentage of the clients that are using SMS are also using more than one solution here on the API basic kind of product.

So if you could provide a little bit of more detail here on how this has been evolving. That's it on my side, guys. Thank you very much.

Shay Chor -- Investor Relations

Thank you, Enrico. I'm not sure if we have -- do you have -- what would be revenues from beyond SMS if we were to exclude the seasonality.

Unknown speaker

Yeah. We can assume -- we have 20% higher than the average for SMS. I would assume that the beyond SMS revenue grew for five percentage points, around 45%, I would say.

Shay Chor -- Investor Relations

And Cassio, can you comment on cross-selling, what we're doing, how this is evolving?

Cassio Bobsin -- Founder and Chief Executive Officer

Yes, definitely. Enrico, we probably don't disclose the numbers for cross-selling, but it's fair to say that we've been structuring different approaches for customers to adopt more widely our whole platform. And we have, I would say, more than 5,000 customers that are using solutions beyond Saas, currently, which means it's becoming a strong part of our market press being driven by these new solutions have been watching. And the way these customers usually start nowadays, the -- most of their -- these customers start as from solutions other than SMS termination.

That's most of the reason we're seeing is because the demand is huge we do, of course, work the cross-sell, but it's not solely these revenues from SMS solely from cross-sell the come especially from new customers arriving at some of them. And sometimes, because both ways customers can start with SMS and then go into one of our solutions. On the other side, it can come from one of our solutions and then use SMS over time. So this is basically how the dynamic works where these are for the portfolio adoption.

And I think that we don't have that kind of number of cross-selling being disclosed, right?

Unknown speaker

Yeah. You're right.

Enrico Trotta -- Itau BBA -- Analyst

Perfect. Perfect, Cassio. Thanks, Cassio and Shay. Thank you very much and have a nice day.

Thank you.

Operator

Thanks for your question, Enrico. And now the next question comes from [Inaudible], sell-side analyst from Goldman Sachs. [Inaudible], we are now opening the audio so that you can ask your question live. Please go ahead.

Unknown speaker

Yes. Good morning, guys. Thanks for taking my question. I guess my question is just like a follow-up on this -- on the revenue mix.

I mean, please correct me if I'm wrong, but if we would assume this 41% SMS revenue in the fourth quarter and according to what we can see for the full year 2021, an we are getting here into a negative margin on the SMS business. So is this right or what we are missing here? Thank you.

Shay Chor -- Investor Relations

Thank you, [Inaudible]. Do you want to share -- I can tell you the -- some numbers, but yes, I can tell you this, it's not negative. Definitely, Q4 has a lower margin on the SMS business. And the reason being that because the seasonality is -- because of the client mix that impact the seasonality the profitability is slightly smaller, for instance, in Q4 versus Q2, but definitely not negative.

We can take this offline, and I'll help you do the math.

Unknown speaker

OK. All right. Sounds good. Thank you, Shay.

Operator

Thanks for your question, [Inaudible]. And now the next question comes from [Inaudible] once again, sell-side analyst from UBS BB. [Inaudible], we are now opening the audio so that you can ask your question live. Please go ahead.

Unknown speaker

Thanks, guys for the follow-up here. I have a question on margins. We've seen some -- I just wanted the dynamics of R&D and commercial expenses here as we've seen during the fourth quarter. In terms of percentage of revenue, which level does the company understand that it should be the normalized level of R&D and commercial expenses going forward.

Shay Chor -- Investor Relations

Thanks, [Inaudible]. Cassio, do you want to take this?

Cassio Bobsin -- Founder and Chief Executive Officer

Shay in terms of percentage, can disclose maybe what we have in the forecast, right?

Unknown speaker

Yeah. We understand that we have plenty of room for growth, especially in R&D because we came from a few years back of less than 5%. And we are aiming for the next few years to reach a level between 13% to 15% of the net revenue. And for sales and marketing, we already see that we for now in 2021 and the beginning of 2022, we reached the level that we think is good for the company for -- to sustain the growth ahead.

It's around 32% to 40% of the our revenue.

Super clear. Thanks, guys.

Operator

[Operator instructions]

Shay Chor -- Investor Relations

Roger, I'll take -- I have a question here on the webcast. Cassio, can you comment on the integrations of the companies that you acquired, how those are going?

Cassio Bobsin -- Founder and Chief Executive Officer

Yes, definitely, Shay. Talking about the most recent acquisitions. We finished integration process during the last quarter. And the company that we acquired middle last year, we've been now into a full mode integration.

We expect to finish the process during the next couple of months. It's quite interesting, the way of being able to pull synergies as we've been integrating different teams and talking directly to customers, and offering a whole portfolio for customer experience solutions. So it's been quite interesting going into the direction of a full integration. Talking about data, we started the integration process.

We just finished Phase 1, which means the corporate structure. Now we go into Phase 2, which means approaching the product platform so we can benefit from the different functionalities and possibilities that we can create by combining both platforms. And talking about we mentioned before, we expect a close operation in Q2. And after the closing, of course, we start first with the corporate integration, and then we go in the same way by integrating the platform so we can bring a whole set of customers that have this kind of demand that have been served by Zenvia with different parts of our portfolio to benefit from the solutions as well.

And also, of course, connect our whole platform with so we can increase the value for these more than 3,000 customers that they to reserve. So that's pretty much how we've been going in terms of integration. We're very happy and excited with what we've been seeing in terms of benefits for customers and we're able to pull in terms of synergies and the project is considering that with each acquisition we expand our TAM. And as we deliver integration, we create even more value with the same customer we serve.

Operator

Perfect. And now we have the next question. It comes from [Inaudible], sell-side analyst from Goldman Sachs. [Inaudible], we are now opening the audio so that you can ask your question live.

Please go ahead.

Unknown speaker

Yes. Thanks for the follow-up question. Look, given where the stock is trading and the price, I mean, would you consider doing like a share buyback program or something like this -- we've been getting a lot of questions from investors. So I was wondering if you can just share your, let's say, perspective given current market environment? Thank you.

Shay Chor -- Investor Relations

Thanks, [Inaudible]. What we can tell you is when we consider our capital allocation, especially in light of other questions that we get in terms of additional M&A. What we can tell you is all the M&As that were must-have we did. There could be not the one or two small that they are nice to have, not urgent to be done.

With all the crisis, interest rates going up. So we decided to take a step back and preserve some of the liquidity that we need to run the business. And in terms of share buyback, it's part of the consideration when we decide how to allocate capital, right? So at a certain point, when we decide to resume capital allocation for M&A one of the considerations will definitely be if it's better to buy our own shares or to buy another company that will depend on valuation. That will depend on a couple of things.

But it's definitely an alternative that we have.

Unknown speaker

That's great. Thank you, Shay.

Operator

Thanks for your question, [Inaudible]. And now we have another question from Enrico Trotta, sell-side analyst from Itau BBA. Enrico, we are now opening the audio so that you can ask your question live. Please go ahead.

Enrico Trotta -- Itau BBA -- Analyst

Hey, guys. No. Another question here regarding competition. I would like to understand from you guys how is the competitive environment we have been seeing different players here looking at communication and also experience platforms.

So we have been seeing a lot of different willing to become an ecosystem in this creation of what the co-ecosystem also involves several solutions that Zenvia is offering right now here on the communications side of the business. I mean has been the competition, if you could elaborate a little bit on that if this has been impacting churn levels? I mean, how do you see this by-product, if you could provide more granularity here on this level. Thank you.

Shay Chor -- Investor Relations

Thanks for the question, Enrico. Cassio, you can take this one.

Cassio Bobsin -- Founder and Chief Executive Officer

Yeah. Yeah. Very good question. Talking about the comp dynamics, we have basically two parts of the business.

The first is the CPaaS, where we started. The CPaaS market is being always a competitive market. And we are very used on these dynamics, especially on big customers. So I would say that hasn't changed since the last couple of years in terms of being -- competing in the market.

When we look at SMB, it's a bit different even for CPaaS then it's a much less competitive than it is for the enterprise market. So I haven't seen any change in that sense. Looking at SaaS customer experience, SaaS solutions which are the majority of our beyond SMS revenues. Here, we see a huge demand for different solutions and ways to improve customer experiences.

And the dynamics of competition in the solutions may differ for each specific solution. It's fair to say that we mostly compete with niche SaaS companies across different markets and regions across LatAm. And for each one of these solutions, when we face competition from global players, we are very efficient in competing with these global players, that's why we've been very successful in achieving a high growth pace on the solutions throughout the region. And as we invest more on the integration of these solutions to the core of our platform, we expect to create a very unique approach for the market as customers will be able to experiment and test different solutions and benefit from the data that we are able to provide, and insights we're able to provide and also, of course, the multichannel approach as were CPaaS platform, and we'll work full stack.

We're able to help these customers adopt solutions considering the whole bunch of channels they need sometimes provide some surfaces for the customers. And basically looking at this landscape for SaaS customer's different SaaS offerings, we don't see any high competition or even if some players are in some parts bringing one of the solutions on the platform. We don't see it something as a kind of threat. Our strategy because it's quite unique.

And the way of being evolving all that, we expect to be really successful as we evolve that integration. And that's most of the focus for '22 as Shay mentioned, we already have a very interesting and highly competitive solutions for the market. And as we invest more on the solutions and we -- as we scale them to the markets and assessing the high demand, we expect that this would really be interesting in terms of how the percentage and how that would represent in terms of our revenues and results of the time.

Operator

Thanks for your question. And 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, all to you for joining our session. It's been a great year and looking ahead at 2022, we expect to really focus and a lot of opportunities have been working on and seeing all of that evolve into our strategy in order to fulfill a vision and deliver a purpose of creating a new world of experiences for end customers and empowering all of those businesses across the region to really make a difference on how people enjoy and experience their sources engagement with brand. So thank you very much, and see you next time.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Cassio Bobsin -- Founder and Chief Executive Officer

Shay Chor -- Investor Relations

Unknown speaker

Enrico Trotta -- Itau BBA -- Analyst

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