Zenvia - Earnings Call - Q1 2025

Transcript

Operator (participant)

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. For the Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and we'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you do not want to open your microphone live, please write down "no microphone" at the end of a question. In this case, our operator will read your question aloud. Now, I would like to welcome Shay Chor. Sir, the floor is yours.

Shay Chor (CFO and IR Officer)

Good morning, everyone. Thank you for being with us here today to discuss Zenvia's first quarter 2025 results. I am Shay Chor, CFO and IRO. Let's start with a snapshot of the Q1 2025 performance, where you can see all the main financial KPIs of the period. As you can see, in the first quarter, we recorded strong top-line growth of 39%, reaching almost BRL 300 million, mainly driven by CPaaS. On the profitability side, we continue to experience margin pressure in the CPaaS business and some temporary impacts on the SaaS business as we ramp up our Zenvia Customer Cloud solution. Therefore, our consolidated adjusted gross profit declined 21% to BRL 74 million, from BRL 94 million a year ago, with gross margin decreasing to 25%. There were two main drivers behind this.

First, on the CPaaS side, we saw another quarter with higher CPaaS mix due to strong volume growth with lower margins, combined with an increase in SMS costs applied by the carriers in January, which is expected to be pass-through prices throughout the year. Second, on the SaaS side, while adjusted gross profit remained stable year over year, the margins were impacted by the transition to Zenvia Customer Cloud, as we are still ramping up the business. I'll talk more about this later on. This drop in adjusted gross profit was partially offset by a BRL 7.5 million decrease in G&A, which represented 8% of our revenues in the quarter, practically half of what it represented a year ago. As a result, normalized EBITDA totaled BRL 20 million in the quarter, in line with our expectation, and is expected to increase progressively over the course of the year.

It is important to highlight that we incurred approximately BRL 8 million in one-time severance cost during Q1, related to the workforce reduction as announced on January 13. Let's take a deeper look at these results. In this slide, you can see the breakdown of our revenues between SaaS and CPaaS. The revenue increase in this quarter came mainly from CPaaS, which remains very dynamic and volatile, and went up 58%, making up 73% of our total revenues. The CPaaS revenue growth came mostly from certain customers that currently have tight margins. We are confident that the strategy of acquiring clients at tighter margins will pay off in the middle and long term, as we do not need additional G&A expenses to manage them.

In the SaaS business, revenue went up 5% year over year, mainly driven by higher revenues from SMB customers, an encouraging sign given that it is the target audience of Zenvia Customer Cloud. The SaaS business represented 25% of our revenues in the quarter. This higher mix of CPaaS, with low margins, still impacts our gross margins. Let's move to the next slide to discuss our profitability. This slide gives us a comprehensive view on how gross profit and margin performed in the quarter. The first chart on the left shows the SaaS business. Adjusted gross profit was flat year over year at BRL 43 million in Q1 2025, while adjusted gross margin from SaaS went down 2.7 percentage points to 54%.

Even though SMB customers have higher margins than the average mix, we saw a decrease in the SaaS adjusted gross margins primarily due to the transition to Zenvia Customer Cloud, as the business is still in its ramp-up phase. We expect to keep scaling over the next quarter and improve profitability. It is worth noting here that revenues from Zenvia Customer Cloud solutions increased 15% year over year and are expected to increase even more as we ramp up the business. In the middle of the slide, we can see the CPaaS performance that was again impacted by the newly acquired CPaaS clients with lower margins and increased from the carriers that I already mentioned. As a result, our consolidated adjusted gross profit totaled BRL 74 million in Q1 2025, with an adjusted gross margin of 25%. Moving on, let's now discuss our G&A.

Our G&A expenses this quarter went down 24% year over year, reaching BRL 24 million, already including around BRL 8 million in severance costs incurred in Q1 2025, as I mentioned earlier in this presentation. This brings G&A as a percentage of revenues to 8%, down 6.7 percentage points from the 14.7% reported in the same period of 2024. This is due to the workforce reduction of approximately 15% announced in January, that is expected to result in cost savings between BRL 30 million and BRL 35 million in 2025, already factoring in the severance expenses. Moving on to the next slide, another key index that we have been highlighting in our presentation for a couple of quarters now, EBITDA minus Capex, recorded a positive BRL 10 million inflow in the quarter.

When we look year over year, this metric remained mostly stable, and we also ended the quarter with a cash balance of BRL 86 million. We expect EBITDA to continue growing at a faster pace than our Capex, as it has been the case for the last few quarters. Capex for 2025 should remain at the same level of 2024. Moving on to the next slide to talk about our next steps. Although they've been very consistent for the last couple of quarters, it's always important to remind you what we've been doing at the next steps. As we embark on our new strategic cycle, we are focused on expanding Zenvia Customer Cloud in Brazil and Latin America. We are focused on accelerating organic growth, leveraging our scalable new platform and partner ecosystem, while maintaining our commitment to the leverage in the company.

The rollout of the new strategic cycle announced in January is taking a toll on short-term profitability, but we are steadily advancing efforts to boost our medium and long-term performance. At the same time, we are streamlining operations even further, with AI playing a key role, not just in how we serve clients, but in how we operate internally, with greater efficiency and intelligence. As we disclosed in January, we will carefully evaluate opportunities to divest non-core assets. We believe we own assets that hold significant value in their segments, and an opportunistic divestment could play a role in optimizing our capital structure. We are working hard for these actions to result in a more efficient company with exceptionally solid business metrics, enabling us to unlock value to our shareholders. With this, we conclude our prepared remarks, and we are ready to take your questions.

Operator (participant)

We will now begin the question-and-answer session. Once again, for this Q&A session, we ask you to write down your question via the Q&A icon at the bottom of your screen. Your name will then be announced, and you'll be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down "no microphone" at the end of your question, and our operator will read your question aloud.

Shay Chor (CFO and IR Officer)

Leno, let me take your first question here in the webcast. Could you talk on some more of the reasons behind the CPaaS growth in terms of SMS volume? Do you think there is an AI tailwind here with companies spending a lot more on campaigns now, or is this a temporary short-term trend? Cassio, do you want to talk about the trends on the SMS and if there is anything AI-related to this?

Cassio Bobsin (Founder and CEO)

Yeah, sure. There is some seasonality in terms of SMS volumes due to marketing campaigns that are relying on SMS as its main channel. We understand that this is keeping a strong pace in the last couple of quarters and still giving us a bit of a tailwind on the next couple of quarters as well. It is not related to AI itself, but mostly to marketing campaigns that are resulting in these volume increases in the last couple of months. I think we do have a second question, right, Shay, from the same from our meeting.

Shay Chor (CFO and IR Officer)

Yeah, let me just add before we go to the second question on trends. Q1 was actually a pretty strong following what we saw in Q4 and actually the entire second half of last year. When we look into Q2, we see it somewhat softening, although continue to be very strong, and we continue to see SMS volumes growing year over year above two digits, high two digits. So it's not as strong as it grew in Q1, but continues to be with a strong growth in Q2 in terms of volumes. Now, going to the second question, any more color on Zenvia Customer Cloud would be helpful to understand how the 15% year-over-year growth for Customer Cloud is being calculated, given that Customer Cloud only launched in Q4.

Does the 15% growth change the BRL 180 million-BRL 100 million guide for the year, given that it is lower than the 25%-30% projected growth? Let me start here, and Cassio, feel free to add on anything here. When we talk about Zenvia Customer Cloud, we always include what is native Zenvia Customer Cloud, meaning new clients since we launched in October coming in directly into Zenvia Customer Cloud, but also the former businesses that are being migrated and clients that are being migrated to Zenvia Customer Cloud. Just to put into perspective, when we say about 15% growth year over year, it includes new clients directly in Zenvia Customer Cloud, but also we compare the growth overall of what we call the Zenvia Customer Cloud Plus, which includes the clients being migrated.

Second, obviously, that we believe that as we ramp up and people get to know more and more Zenvia Customer Cloud, this will be accelerated, and therefore we continue confident that this business will grow 25%-30% into full year 2025. There's another question here in the webcast. What are the current headwinds for the fast adaptation for Zenvia Customer Cloud? Are the headwinds associated with the current high interest rates, or customer cautious to migrate to Zenvia Customer Cloud? Cassio, do you want to take us on the challenges that we see on the first months of Zenvia Customer Cloud?

Cassio Bobsin (Founder and CEO)

Sure. We're seeing strong adoption for new customers that are coming to Zenvia Customer Cloud in terms of migration. We're being cautious when migrating customers because we want them to experience a very interesting improvement on their current solution. We're taking time to get them by hand and having them understand what the whole package that they are being deployed to them as this new solution gives them lots of different opportunities to adopt Zenvia Customer Cloud. I would say that we're being cautious to get these customers to have a good experience, to stay on the platform, to evolve their usage. It's not about the customer being cautious. It's more about us being cautious to bring them an awesome experience when migrating.

Shay Chor (CFO and IR Officer)

Thank you, Cassio. Another one here. Could you please provide some color on asset sale progress? How is the earn-out payments going and more color on the leverage? Obviously, we cannot, as was the case with the previous earnings call, we cannot comment specifically on asset sale. As we keep highlighting, this is something opportunistic, and we will continue to evaluate opportunities if and when they arise. All the rest, in terms of capital structure and already taking the next question here and pulling them together, we continue to seek a way to leverage balance sheet faster and improve our capital structure. This is important not only, obviously, from a pure financial reason and with high interest rates, the leveraging is even more important, but also because we believe that we could accelerate our growth if we had a better capital structure compared to our EBITDA.

It is not a one-way progress or a one alternative progress. It will have to come from liability management, as we have been doing, and we did again in the first half of this year when we renegotiated with some banks a grace period on loans amortization and also sales of non-core assets if it is the case. It is a combined effort. As you can see, also, we have been streamlining operation and reducing G&A expenses to accelerate EBITDA. All of the usual tools and combination that we have to deleverage balance sheet. Hugo, can you reply? There are no further questions at this moment in the webcast.

Operator (participant)

Sure, Chef. Again, if you have a question, please use the Q&A icon at the bottom of your screen to write it down, and we'll open your microphone. If you prefer not to open your microphone, please write down "no microphone" at the end of your question, and our operator will read your question aloud.

Shay Chor (CFO and IR Officer)

There's one more here. Can you provide us with guidance for the year or at least tell us how the trends are looking? The same way that we did in Q4, it's been a very volatile year, especially on the CPaaS side, and there are some ramp-ups on the Zenvia Customer Cloud side. We decided not to give a formal guidance for the year, but discuss short-term trends. As I mentioned in the first question, when we look into Q2, the SMS business, the CPaaS business continues to be strong, although slightly decelerating compared to what was Q1. We continue to expect Zenvia Customer Cloud and SaaS to continue growing at the same trend that we saw in Q1 with some acceleration on Zenvia Customer Cloud side.

EBITDA reported was BRL 20 million in Q1, but as we mentioned in our earnings release, there was a BRL 8 million one-time expense related to severance cost, as we discussed on January 13, the reduction on our workforce. If we consider around closer to between BRL 25 million and BRL 30 million in recurring EBITDA in Q1, this is more what it should look like in Q2. The second half is usually stronger because of seasonality. These are the trends on a quarterly basis that we are looking at. There are no, oh, there's one more question here. Cassio, how is Zenvia Customer Cloud different from the solutions offered by competitors?

Cassio Bobsin (Founder and CEO)

Okay, so usually, companies that are using software for their customer experience, they tend to have a very fragmented ecosystem of providers, which means they use one software for marketing campaigns, another for sales, another one for customer support, and some other solution for customer engagement, and sometimes a different provider for automation, chatbots, and AI. What we were able to do at Zenvia Customer Cloud is to unify all those processes and solutions into the same software, meaning that it's in the same interface, same login, same contract, and business model, sharing customer data among all these different perspectives or processes, which in practical terms means that you can do a marketing campaign or sales process or serve your customer, serve their tickets or demands, having all the data from the customer within the same place. You can see the whole context of the customer.

All these share the same database, which means every time you interact with a customer, you have the data being available for the whole customer journey. What we're doing right now on Zenvia Customer Cloud is we're allowing customers to build agents and also providing some agents that automate some of these operations, such as identifying who the best customers are or helping to understand what is the customer context for some support. All this is able to be developed and provided because we are a unified solution, and that's not something you can easily make with this fragmented ecosystem. The majority of small and medium customers have no other way to make that happen. That's why they're seeing huge benefit from Zenvia Customer Cloud.

Even large customers that we did not necessarily expect to adopt Zenvia Customer Cloud as their solution are beginning to use our software. We have huge banks and retailers using Zenvia Customer Cloud as their solution. That is something we are seeing, that there is a really very good opportunity for us. There is a white space that we will be able to fill. That is why we are very excited about this solution being somewhat unique to the market.

Shay Chor (CFO and IR Officer)

A follow-up on this. Can you talk a little about clients who have been using Customer Cloud for the longest? What do trends look like? How do they mature usage? Just give us some, Cassio, some view on use cases and what's been going in the Customer Cloud from a client perspective.

Cassio Bobsin (Founder and CEO)

Sure. We're still early in the cohorts, but we're able to see the behavior of these customers easily adopting new modules by themselves. Before Zenvia Customer Cloud, we provided our solutions as a standalone. It's solution as a standalone offering. We measured cross-sell of these solutions. It was very difficult to sell a second software. Every time a customer would consider adopting a new software, we would compete with any other provider that was able to provide a niche solution. As we provide Zenvia Customer Cloud, all these software embedded, they are a click away from current customers to try to experiment with this new solution, which means they're, let's say, they're doing marketing campaigns. If they want to engage with customers and make a sale, that's just a menu item. They just click, and they start interacting with these customers.

If they want to create to provide a ticket control or customer support, they just click, and they're able to test this solution. This is creating a huge effect of cross-adoption that it is around, I would say, 15 times what we had before in terms of cross-adoption that we compared earlier to cross-sell. That is getting a very good traction for customers. Every new customer that starts with one module over time, they easily go to a second or to a third module, and that is happening throughout the customer base. As the business model that we created is able to monetize that as we charge per interactions with end customers, it's kind of a volume usage model. We are able to monetize that. We see these cohorts growing usage and then upselling their plans as they continuously use all these new adaptive solutions.

That's the trend that we're seeing. The kind of customer that are using this is very broad, but it's fair to say that we see Health, Education, Retail, and Financial Services are being the ones that benefit the most of the solution. We thought it would be mostly for medium-sized companies, but we're also seeing large companies adopting the software. That's kind of an expected trend for us that we're seeing occur in the last couple of months. That's pretty much what we're seeing nowadays.

Shay Chor (CFO and IR Officer)

Another one for you, Cassio. We'd love if you guys can provide more color into the new franchise model. How is it going? Expansion into other countries in Latin America, how big is this an opportunity?

Cassio Bobsin (Founder and CEO)

Sure. Just starting in Latam, when we look at Zenvia Customer Cloud, we have around, Shay, please correct me if I'm wrong, but around 40% of our revenues from Zenvia Customer Cloud is already coming from countries other than Brazil and mostly are from Latam. We see that it is a very competitive solution that we are providing for the whole of Latam. That is why we are investing to grow, and we are already seeing growth for Latam as well. In terms of the franchise model, we launched that model in Q1, beginning Q1, with zero partners, and we have more than 30 franchises already contracted, already working with us. It was our goal for the year, but we were able to achieve that in the first half of the year. Now we are working with them and training and helping them on their first customers, and that is doing pretty well.

That's why we are very excited with this new model. We understand that throughout the year, as these new partners, they mature, we'll be able to see an important part of our growth from Zenvia Customer Cloud coming from this model. Let's see what happens throughout the years. We're able to see the amount of growth and the amount of leverage that will bring us, but it's been interesting, very interesting so far.

Shay Chor (CFO and IR Officer)

Cassio, just to add on the Latam side, we have been putting more focus on that. We have a team based out of Mexico, and it has been, as Cassio mentioned, competitive, but we see opportunities. We estimate around BRL 50 million in revenues coming from Latam in 2025. It is more than 50% growth when we compare to 2024. It is a strong improvement, strong growth. Obviously, opportunity is way bigger than this, but there are also, as I mentioned, a lot of growth factors that depend on our ability to leverage the balance sheet and being able to accelerate growth. Despite that, we are very happy with what we are seeing in our Latam expansion as we put focus on it, and it is one of the specific goals that we have for 2025. Can you please address the issue of customer churn?

Is this a result of your business transition? What are you doing currently to retain customers? Cassio?

Cassio Bobsin (Founder and CEO)

Sure. As we have some solutions that we consider legacy solutions, we expect that we have a bit of churn that is higher on this legacy software than on the core software. When we look at the core software, which means ZCC and the ones that are going to be migrated to ZCC, there we do not see a huge problem in terms of churn that has been healthy. Of course, we are always working to get a better retention of these customers. Usually, what we have in terms of churn for this portion of the business is more early churn. These tend to be customers that try, and at some point, they understand it is not the best solution for them. When we see the base churn, that is pretty low. When we compare to benchmarks, we are very healthy in terms of churn for the base of customers.

It's a mix of different portions of churn. We're very satisfied in the churn level, considering all these aspects. Of course, we're always working to get not only a better rotation, but also better development of customers that stay on the base. We're able to do that with the cross-adoption and the volume usage business model.

Shay Chor (CFO and IR Officer)

Thank you. Thank you, Cassio. I'm not seeing any further questions here. Hugo, can you reply?

Operator (participant)

Again, if you have a question, please use the Q&A icon at the bottom of the screen to write it down, and we'll open your microphone. If you prefer not to open your microphone, please write down no microphone at the end of a question, and our operator will read a question aloud.

Shay Chor (CFO and IR Officer)

I guess that's it from the Q&A side, Hugo.

Operator (participant)

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

Cassio Bobsin (Founder and CEO)

Thank you very much for everyone's attention. We are very happy to share with you the results of Q1, and we're seeing a very interesting year for us. It's a year of getting profitability and growth combined. We're seeing the beginning of the year giving good trends for the whole of 2025. We expect you to see you in the next quarter.

Operator (participant)

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.