Bemobi Mobile Tech S.A. (BMOB3) Earnings Call Transcript & Summary

Let's just start our earnings release presentation. Welcome to Bemobi's earnings release presentation for the third quarter of 2022. My name is Nicholas Baines, I am the IR Director, and we have Mr. Ripper, our CEO; and Mr. Veloso our CFO. Please remember that this presentation is being recorded. Our participants will be able hear us and see us during the call. Also every attendee will have access to simultaneous interpretation into English if needed. At the bottom bar, you can click interpretation and then English. Right after our presentation, we get started with a Q&A session for analysts and investors and will be following instructions as needed and providing you with instructions then. Any statements that may be made during this earnings release presentation regarding our forecasts, estimates, targets and goals are based on assumptions and beliefs at the Board of Bemobi as well as on information currently available to us. It involves risks, uncertainties and assumptions because these are related to future events, which may or may not happen. Investors must understand that overall economic conditions and other operating factors could have an impact on our future performance, leading to significantly different results. So now let me hand it over to Mr. Pedro Ripper, who will be providing us with comments on the third quarter. Please go ahead, Mr. Ripper.

Thank you, Nicholas. Hi. Good morning, everyone. Once again, thank you for being with us for the earnings release presentation regarding the third quarter of 2022. Before we get started, let me also say that we also have our VP responsible for the presentation or the operation in Latin America, Mr. Joao Stricker, and he is in Mexico right now. So maybe he won't be on video because he's having Internet issues. So let's start our presentation. I always like to start with a brief presentation regarding our business model, and we have significant changes. We've had significant changes in the last 11 months. At its core, Bemobi has a business model based on a go-to-market founded on B2B2C. We work with businesses that have access to thousands or even hundreds of thousands of clients. We've worked mainly with telecommunications and mobile operations. And in the last few months, we've started working, especially with finance and energy. Through these partners, we offer our solutions to these industries. Originally, we were focusing on app subscriptions, especially for games. In the past few years, we also added solutions for Microfinance with scoring and credit payments and other platforms. We usually work in emerging markets. This is where usually our partners have similar problems to Brazil. So let's look at our portfolio right now. This is how we report our revenue. Let's go to the next slide, please. Right now, our business model is split into 4 macro areas. Originally, we've always worked with digital subscription services. These are micro subscriptions, recurring subscriptions, and we have a global footprint for this one. The second business line is a bit more recent for the last 2 years, which we call Microfinance. This one involves 2 operations. We have Nanocredits, especially for telecommunications with top-ups, for example. And we have the Scoring model. And as you can see in its name, usually, we have risk management and credit so that financial companies can rent credit safely. Our third business line is our vertical, which we call Digital Payment. Here, we have digital channels and the full journey, including payments. We originally focused on telecommunications. But recently, we expanded into utilities. Finally, we have SaaS, but since this is more connected to platforms, we call it PaaS, platforms as a service. Among them, we find Loop. Loop is special compared to other platforms because it doesn't generate revenue. It is an enabler so that we can sell other services. This is how Bemobi can scale up its business digitally by selling our services. After this brief introduction, let's talk about qualitative and quantitative results. We usually measure a few metrics for expansion, even though we were originated in Brazil, we've been going international for a few years, and we are still expanding into new emerging countries. Recently, we added Afghanistan in Q3. This is an interesting country. Just a while back, it was an inhospitable country, but they have a lot of subscribers for telecommunications. And we believe this is going to be an interesting country in the medium to long term, especially. in the B2B2C model, we added 5 new partners in the third quarter. We also have a stable volume of end clients we are reaching. And sometimes, there's redundancy. Sometimes one partner is going to give us different paths to reach the same customer. Over on the next slide, we can zoom into the B2B part of our operation. So for each one of these 4 business lines, can go into details of how many partners/clients we have right now in our operations. For this quarter, we have 2 new partners for the subscription vertical. That includes Movistar and Etisalat. In microfinance, this is one of the most important qualitative data and it's a highlight for sure, because historically, in micro finance, in our offerings for scoring, our first partners and clients were new banks. These were businesses innovating in the finance industry. For example, we have [indiscernible], we have new bank among others. These were businesses that were already prone to using alternative data for new scoring. Now more mature financial businesses have more mature sources of data, and they usually didn't use our kind of offering. However, after these years, we started working with American Express in Mexico, offering another factor to fine-tune their scoring model. We believe this is a very promising growth lane. We'll be able to show that this offering is useful for any financial institution, not only newer institutions. On another qualitative note, in the last quarter for those who are following up with us, we announced 2 new contracts that we had just signed literally a few days before our last earnings release presentation. Now after a few months, we're no longer discussing the contract, and we are already going into operation at Energisa. The impact of their operations is not showing in the numbers in our third quarter. But this is relevant because the contract was effectively signed during Q3, and we went into operation at the end of the quarter. We expect that this will gradually bring results both for Energisa and ourselves during the next year. In addition to Energisa, we are about to go into operations with another 2 partners. With Equatorial, we don't expect impacts from these operations in the fourth quarter, and we'll see positive results step-by-step as we enter 2023 and throughout the year. And [indiscernible] sent me a message reminding me of something important. In the case of Movistar, it is already an important partner of ours regionally, but we started working with them in Colombia in the last quarter. And with Movistar, we also released Loop in our fourth vertical, which is our platform and which is a very important tool for us to leverage sales in Colombia. So this was a very good quarter, qualitative. And these are our lead indicators. Usually, our B2B indicators measure our potential for growth. On our next slide, we're going to see B2C indicators, which are more related to revenue in the short term. In the three 1st verticals, which are more traditional B2B2C models, we had good evolution. We had a slight decrease quarter-over-quarter for digital subscription services, which was stable in the previous quarters, but we had a relevant growth year-over-year with 35.5 million subscribers, a 10.3% increase. In Microfinance, which is a metric that it is useful for volume, we see the number of transactions. Here, we have 2 kinds of transactions here. We have nanocredit granted, and we have Score granted. So these metrics are a bit different, but I think they capture the evolution of our business. And we had significant growth year-over-year. This majorly happened because of the acquisition of Tiaxa, which historically speaking, was really strong in this segment. Finally, for B2C metrics in digital payments, we usually use this metric, which is TPV, Total Payment Value. This means the number and the volume of processing we're doing when it comes to payments. So this changed especially because of a change in M&A, the purchase of another company last year. So here, we had tailwinds and headwinds. The headwinds were that these payments so far had been 100% focused in Brazil and 100% focused on telecommunications and utility numbers are not here yet. And if you're keeping up with Brazil, for some industries, we had changes in tax rates. Energy was one of this, and telecommunications was another one. And some of these costs transferred to end customers, which is good in the long term, have a bad effect on us in the short term. On the other hand, we also had organic growth to offset it. So we believe this is positive even though it does have a slight negative effect in the short term, which was offset by our new initiatives. Now moving on, let's look at our revenue. We had a very strong quarter. Once again, we had significant growth year-over-year, both for the quarter and for year-on-year growth. Again, we have the element of inorganic growth as well. We had 2 acquisitions with good performance, and we had organic growth as well. We have a slight increase quarter-over-quarter. One of the highlights here is our international operation. We had 2 changes maybe in opposite directions. When we look at the revenue mix, geographically speaking, year-over-year, Brazil gained more space vis-a-vis the international operations because we had the M4U and Tiaxa acquisitions, which bring more strength to our domestic market. However, quarter-over-quarter, we had the highlight of our international operations, which grew even more than Brazil. So we see a trend that internationally, we're going to offset these trends from Brazil. But year-over-year, we see a highlight for Brazil. Now when we talk about diversification, we are really happy. And this was a part of our strategy. We wanted to leverage the chain of B2B2C, so that we could monetize services that would be bringing us synergy and complementary operations. We are really balanced right now. Payments is almost as big as subscriptions. And soon, we believe these areas will be as big as each other, and payments may be even growing bigger than subscriptions. Microfinance is still our smallest, but we've a lot of potential and platform is a bit more stable. This diversification is not only a part of our growth hypothesis, but it brings us another impact. When we work with a B2B2C model, we end up being exposed to the cycles of our partners. However, when we have a multi-industry perspective, which we have right now with finance and utilities, more specifically energy distribution. By using different industries, we become an acyclic. This means that we are not prone to following the upside and downs of one single industry. Of course, we're more exposed to telecommunications right now. But since we have multiple offerings, we're also avoiding some of these cycles. So we may see a decrease in subscriptions, but we can see an increase in micro credits. This leads to more resilient operations with a better range of offerings. In retrospect, this is an interesting metric because we can see resilience and new lanes of growth to accelerate organic growth. Next, when we look at another breakdown, I'm going to hand it over to Mr. Andre Veloso, who is going to go into details about the finances below revenue.

Thank you, Pedro. Good morning, everyone. I'm really happy for being here to talk about financial results for Bemobi for the third quarter of this year. So let's start with gross margin. We can see that our gross margin in the third quarter was around BRL 103 million. It's a 92% expansion vis-a-vis the previous year, a relative expansion was around 1.9 percentage points. This happens because of a better mix of products and also efficiency gains related to the payments vertical. Year-over-year, we had 114% growth, around BRL 295 million. Regarding expenses, and please remember that the consolidation of Tiaxa and M4U, which happened on the 31st of August and the 3rd of November of last year, brings us 2 business models with lower margins compared to the previous Bemobi, which means that we're going to have an increase in expenses for our consolidated results. In the third quarter, we got to BRL 57.5 million, which is 158% growth vis-a-vis the same period of the previous year. And in this case, we had 2 big impacts. First, we had an increase in payment terms. For some geographies, we decided to go more conservative. So we registered this for this quarter. And at the end of the third quarter, we also had a wage adjustment for our industry. So this put more pressure on personnel expenses or personal payment -- personnel payments. We focus on our structure, which leads to better potential for growth in the medium-to-long term. So year-on-year, was around BRL 163 million in expenses, which is a 176% growth compared to the same time of the previous year. So our adjusted EBITDA for the third quarter of 2022 was BRL 45.4 million which is a 44% expansion compared to the same period of the previous year. In year -- and for the numbers up to this point of the year, we have BRL 132.5 million, which is a 68% growth. We still have around 32% in margin, and we have this perspective of the gradual expansion of this margin as the quarters go by. Let's go to the next slide, please. At the top left, we can see our adjusted net income. We got to BRL 40 million this year, and we were impacted not only by better operating performance but also by more robust financial results because of a better Selic rate during this quarter. We also have the positive effect of a market marching up for the swap of shares, our net income was impacted by that. So this offset some of the losses that we had in the first quarter of this year. So we got to net income of BRL 71.2 million, which is a 40% growth year-over-year. If we were to also adjust the impact of that share swap, we were still going to be negative by BRL 4 million for this year, but we wouldn't have this expansion. Regarding operational cash flow, we had a 32% increase compared to the third quarter of 2021. We had around 75% of cash conversion. Cash generation was around BRL 97 million. This is a 55% growth year-over-year. And our cash conversion rate is also very robust around 74%. And our biggest highlight for this quarter compared to the previous quarter, was a strong cash generation at Bemobi, which we see at the lower right. We can see not only the adjusted EBITDA minus CapEx which is contributing with BRL 34 million, but also other things. We worked with working capital with over BRL 10 million. We had positive contributions from the financial results with a cash impact of BRL 14 million, which was offset by the physical buyback of shares of BRL 4.5 million leading to around BRL 546 million in cash. It is also important to notice that this is how we are able to rebuild most of our cash position, which the company enjoyed after the IPO. However, we already concluded and we already paid for 2 transformative acquisitions and we paid dividends, and we also promoted the share buyback. So we were able to generate cash and to unlock value of the company. Thank you for your time. And let me hand it back over to Pedro, who is going to share our final remarks on our results.

Wonderful, Andre. Thank you. So let me summarize our results before we go to the Q&A session. I believe we've been very consistent when it comes to deliveries. I think it is our seventh or eighth actually earnings release presentation. We've been seeing consistent results in every business line. We have consistent margins. We have margin growth, and we've been enjoying synergies. So consistency is a plus here, and it's something we've been striving for. We're also very happy, as I said, and we're going to boost our efforts in diversification of industries for the current offerings. We believe we have enough offerings right now, and we still have enough variation within the ones that we already have. But within this pool, we still believe we have a lot of growth to happen. For example, we have utilities and energy. And we have our new partnerships in finance as well. So we believe this leads to a lot of growth lanes in the addressable market. Now qualitatively speaking, we had 2 acquisitions. Originally, we had slightly different strategies here when it came to integrating them. With M4U, we wanted to have full integration from the get-go because we were already more familiar with them for you. And we were calculating risks, and we knew that we should have a full integration, and this is what we did. We basically had 12 months in November. And looking back, I think we made the right decision. We were able to enjoy many synergies from the get-go, and we're going to start reaping the fruit of that later on in 2024. So by integrating M4U, we were able to achieve that. We finished this integration. And now we're going to have synergies which are going to encompass different areas. With Tiaxa, we had a different approach because they were in other geographies and in other areas, which we were not as familiar with. So we decided to go slow with the integration. And as we became more confident and as we understand these leverages, we're able to review this strategy. We also have Felipe Valdes for a fuller integration now with the brand and the go-to-market efforts. This is what we've been doing for the past few months. So at the beginning of 2023, we'll have a way more integrated operation, and we believe this is going to give us a boost again, especially for revenue. Bemobi has a lot of outreach for sales and Tiaxa is very innovative in products in business development. So with this integration, we are now more comfortable with the risks that come with anything we don't know. Now we also have another interesting side effect. Our ability to integrate and absorb new companies goes up again as we've already absorbed these 2 companies. And related to what Andre was saying, we are very comfortable right now regarding our cash flow. Every business that we bought and also the original Bemobi are cash-generating businesses. And we had the discipline to take our time and to work on things, and this was extremely important to us. We had an increase in the capital cost and there is scarcity in the possibility to go to market. So we're happy that we made very accretive acquisitions, and we preserved our cash in a way. We believe that in the medium to long term, this means that we're going to have acquisitions at a very attractive price. We didn't have a lot of adjustments when it comes to other companies, but we see more rationality especially companies that are not listed, when I say, other companies. So this means that we are still being picky, and we are still being disciplined when it comes to acquisition and other deals. We believe that we have a comfortable cash, but we need to use it smartly so that we bring more synergies to Bemobi. So our plan has not changed in this sense. Let me now stop sharing my screen so that we can go into the Q&A. Nicholas, do you have any instructions on how the Q&A is going to work?

[Operator Instructions] And I already see 2 questions here. Bernardo from XP.

I have 2 questions. Number one, regarding the credit score vertical. I know this is a small segment, which is growing quickly. It is abroad [indiscernible] Tiaxa but you're gaining traction. I imagine you must have a plan to multiply that in Brazil. How big is this market for Bemobi in Brazil? Also, has this thesis been validated to scale it up in Brazil? And I would like to understand the value of this intelligence and the potential market. My second question has to do with business in apps and games. We always talk about opportunities for Bemobi in new verticals with Microfinance, Payments and Scoring. But the truth is, the company has changed a lot and has diluted its original business, but it's still really relevant. So I'd like to explore the leveraging in your original business, and if your thesis is still the same. I understand that this service is an entry door for scaling things up maybe through Loop, maybe 5G is going to bring new possibilities with cloud gaming. So I just want to give you a provocation on how to forecast and how to plan ahead for your business in the upcoming years.

Let me talk about Scoring. Scoring is a subset of Microfinance. I don't think this is mature enough yet for us to think about mass scale, upscaling. Right now when it comes to our maturity levels, we're operating in one country, and we are starting to operate with the second carrier. And together, they will represent around 85% of coverage for the Mexican population, which is really good. It is a huge chunk of their population. And as I was saying earlier, this kind of offering has been around -- for around 1 year for fintechs and new banks. And we're going to have a new pipeline with traditional banks soon, as I was saying, which is another key element for this model, which validates this model even further. So as we're able to validate it, and to scale it up, up next, we need to choose another country with slightly different traits to see if these models are still useful and effective. Because at the end of the day, banks want to know that if they add this Scoring to their operations, they are going to improve their concession rates or they're granting, and they're going to improve the doubtful debtors rates as well, this is what matters. And yes, Brazil would be up next. And it is only natural for us to do that, right? Because this is a market where we know our players really well. We're also headquartered in Brazil, which is a point of advantage because we do have a relationship with a number of institutions. Brazil is sophisticated. It's innovative. And historically speaking, it's very aggressive credit wise. In the last quarters, we've seen that it's been a challenge for many banks to offer these concessions in countries where we have lower profit. So we believe that if we go through this trial here, then we go into a third stage of approaching multiple countries. So for our next chapters, we are starting to work on a few pilots. This is a long-term sales cycle with American Express. It took us a year. And of course, we expect to take fewer months as we improve our model. And you asked about the size of this market. I would look at 2 proxies. This is a subset of the credit bureau business. And with credit bureaus, usually, they have 3 pillars. They have credit with market and identity. And we're biting a chunk of this segment. This is a huge market. And even though we also have identity Solutions, we're focusing more on credit scoring, which we believe we can add more value to. For clients who have more access to banking services with a positive score base, this alternative model has more marginal gains. For a more emerging market with more ratified data, this is very valuable. And even though we have less money, this is where we can get more new clients. So maybe 10% to 15% of this chunk of the credit bureau segment, which is a huge, huge market is what we're talking about. We need to take it step-by-step. We're going to approach Brazil first, and we're going to share this information with you as we make progress. Brazil and another country in Latin America, which we have to pick. Now let me talk about your second question regarding apps and games. We don't talk a lot about it, not because not enough things are happening, but because other areas are newer, and we're not sharing as much with our markets. So it is only natural for us to talk about newer segments. Now having said that, a lot of things are happening over there. Internationally speaking, apps and games have been doing well. And we must remember that we had very negative impacts, which took our numbers for Q2 and for Q3, which is the war. There is a war happening between Russia and Ukraine, which represented 5% of our revenue. And on apps and games, it used to represent 10% to 15% of this business line. So we still have growth in this business line with 2 countries that were significant for this line, and they are at war. So this is positive. Russia and Ukraine was 5% of everything, but it was actually much more for apps and games. So its relative weight is bigger. When it comes to product to innovation, let me give you a spoiler. We've been working on innovation. Much of that is for our catalog because, of course, with subscription services, we need to have a good catalog. The same thing applies to semi services in music. You should have a good app but the quality of the videos and the songs is what is going to determine the quality of the subscription service. So we look for new developers and the next trend developers to add value to our final clients to our end users. However, technologically speaking, for over 2 years or almost 2 years, we've been working on a streaming solution. Just between you and I, this is very, very, very challenging. Even Google gave up on their streaming model. And with Google, they had a streaming model with very high-end games, and people needed a high-end PC to play it, but we're trying to make it more accessible. And we -- they were trying to have servers run games on the cloud. This is a very, very interesting approach, but it's very challenging as well what Google was trying to do. Since we focus on mobile clients, which is the biggest volume in emerging clients, we're focusing on mobility and phones. Everyone has phones that usually can play games, can run games. So we're focusing on a value proposition regarding convenience so that people can try games without having to download this. So with one click, they are able to play these games without having to download them. To be very honest with you, I don't think this is going to be transformative for us. But this is one example of the cycle of improvement when it comes to B2C. We have a lot of incredible cases with IoT and the corporate world, but we don't have a lot of cases for end users, and this is a very good example of that. It used to be more challenging to do this without 5G. And of course, 5G is still at its early stages. I don't think this is going to have huge impact for us in the long term, but it goes to show our commitment of innovating in this field. And it's not as low. We probably have 10 million clients with 5G in Brazil, and it is another way to go up the pyramid and approach higher end users. We're working with this for every carrier in Brazil. So it's basically the same service that we already offer. I mean it's going to be offered to users who have better latency and better connectiveness -- better connectivity. We will have the option of instantaneous play. They will be able to play games without downloading them. Also, our offering is very focused on Android. It used to be the only one that would allow us to play games outside of the App Store. This wasn't allowed for iPhones. But with this streaming offering, since we don't need to download any apps, we're also able to do that with iOS devices. So again, this is interesting. This is good. And iOS once again, is not the most important device in our countries. But of course, it is the device used by clients in more prosperous segments. Was this clear Bernardo?

Yes, Pedro. This was clear. Can I just follow up on apps and games. This has to do with our M&A strategy. Are you still looking into product diversification as an important lever for inorganic growth? This is something you mentioned in your IPO, is this still valid?

Yes, we're still looking into it. But let me tell you how. And let me tell you why I don't sound as confident. We believe that when it comes to growing digital services, our first point is the channel. So having more channels is better than having more services because we depend and we rely on channels. So having another service this is not mean that we are going to double our revenue. However, of course, if we have more services for clients, we're going to have some gains. So we have 2 lenses year. We have services for which we don't have as much demand as we should have. And then we have marginal increases in revenue, but we can look into it and making look into companies that are present in countries where we don't have such a big operation. And then we can look at these players both ways. We can not only bring services from them to resell them in our countries, and we can do the opposite. We can offer our services in apps and games to carriers and distribution services where we are not as present. So this is not our priority number one, Bernardo. But we believe that a few assets at the right price and price is key here, because we already have a presence with these assets could be worth it. So yes, it wouldn't be surprising if we stroke -- if you struck another deal for this. But price is very important and geographies are really important, not only adding another service because channels come first.

I believe our next question is from Christian from Itau.

I have a few questions. First, following up on Bernardo's question, piggybacking on his question. I'd like to talk about what you announced in the last months. You mentioned partnerships like the [indiscernible] channel. How is your development going when we think about apps and games in other channels, which is not telecommunications, how has this been playing out? We have a question regarding other players that have been working on the distribution of these products, for example, Netflix, which is trying to go into this field in a few regions. So what do you think about that? My next question is, you talked about provisions. I'd like to understand how this works for different business lines. I understand that subscription is a more transactional model. And then you can work on provisions for receivables. But you don't have as much reversal ability. So how can you look forward if in other areas, you can prefer suppressions as much? Also what about locations, how it did distributed all over the world?

Christian, I couldn't really understand your second question because it was hard to hear you. But let's answer the first question first. In a way, we have a matrix, we have a few different offerings we offer to the market. And we have different industries or partners we work with. Right now. we have telecommunications. We have utilities initially in energy, and we have finances. This matrix is not over, we don't offer every offering to every player or every industry we work on. So for example, with carriers, which was our origin area and with which we share a lot of affinity, we have 4 verticals, and we offer all 4 verticals in telecommunications. With apps and games, we don't offer them as much to energy and utilities. But with finances, especially through payments and engagement with their apps, we do have an interesting partner for the distribution of apps and games. Now having said that, we were very conservative up to now in the cases we've worked with, and we have a lot of demand from companies who have a partnership with us. However, we've been focused and we try and get it right with the new model before scaling it up. Now with the partnership you mentioned, things were okay. By okay, I mean that this hasn't been a significant partnership regarding size, but we still think it's worth it to invest energy into this sector. But I think we need to fine tune the business model. Let me give you an example of what we've been discussing with some of our partners. In the telecommunications model, we have 2 areas right now. The gross volume comes from different one-off purchases of subscription. They use a chunk of their free balance to get entertainment at very low costs. This model works really well and it scales up. The second model is the bundle or the packages model. So carriers in Brazil and all over the world create bundles to offer better offerings. But 90% of what we sell is one-off sales, because it scales up really well. In the case of digital banks, for example, [indiscernible], we were focusing initially on a one-off sales. And it's scaling up, was not as good as it was in telecommunications. It's good, but it's not as good. So one of the things we've been assessing is that maybe in other segments, bundles could be more interesting, where we have bundles and offer better benefits to clients. We have this wholesale price, so perceived value changes for clients. So yes, there is good demand, and we have other retailers and other fintechs that believe that games could be interesting for their customer base. We've been talking to them about it. We're open to it. But out of intellectual honesty and sincerity, we don't want to just try and roll out. We want to prove it first and then scale it up. And with the results we've had so far, we don't think it's a good idea to just scale it up. As we achieve progress, we're going to share that with you. So right now, we are not at a point where we should scale it up, but I think the thesis has been proven. We just need to work on the better distribution model for monetization. Now regarding your second point, Christian, let me answer according to what I understood. And if I understood it wrongly, please interrupt me and let me know. So let me see if I got it right. The nature of recurring payments versus the micro-credit of services. Is that what you wanted to know about?

In a way. I just want to understand your provisions, where are they focused? Is it on the subscriptions? Or is it on the microfinance? How does that play out vis-a-vis the possibility of reducing them?

Okay. Got it. Okay. Got it. So first, let's understand the flow of revenue. In most cases, in B2B2C, I mean, let me rephrase that. In the case of carriers, this is how revenue works. Clients pay for services, either a game subscription or microcredits and this comes out as a debit either prepaid or paid on the spot. So this money is acknowledged by carriers, and they transfer our take rates depending on the kind of transaction. So it is almost real time coming from customers. Let me acknowledge this revenue with the IFRS, and then carriers transfer our take rate. This is the normal flow. But for payments, the flow is a bit different. I collect payment and then I transfer it to carriers. So it's different. With microcredits, it's also a bit different. I make the sale for a financial institution, I collect and then I transfer to them because they use telecommunication data. So I have to transfer to carriers as well. With the case that we were discussing, this is connected to apps and games. So this flow is from clients to carrier. They collect the money and then they transfer the money to us. In specific cases are also related to country-related challenges because with specific emerging countries, we have a lot of rules on how to transfer money to companies abroad. We work in over 41 countries. So we don't have a local representation everywhere in [indiscernible]. So the money is already in the hands of the carrier. They recognize a bad debt. And sometimes because of the conditions in each country, it may be harder to get it. And as it takes us longer to get this money, it may be interesting, as Andre was saying, to provision a part of this, to be more conservative. Is possible to reverse it? Yes, it is possible. But if we were sure that we were going to reverse it, we wouldn't turn it into a provision. So we have a plan and we have different formats, but this is the cost of doing business. It is not an external factor. We are working on emerging countries. We've been doing that for 10 years. So it is only natural. It is only expected. So it's normal for us to have provisions for that or even more reversals over time of these provisions. We're lucky. We work with very large, very robust companies. And in 90% of cases, it is more related to geopolitical conditions for these specific countries. For example, with the war between Russia and Ukraine, we started thinking about how to work with their flow. But surprisingly enough, everything is under control over there, but it is only the nature of the business. These countries still have lower exposure in some senses. We are still starting to work with them, so it's 100% going to apps and games. Was that clear?

Yes, it was clear, Pedro. Let me just follow up on this and ask one last question. So M4U was acquired relatively a short time ago, only 12 months. And you also announced 2 other partnerships for the telecommunications industry. What should we expect from this? How can we see this turning into results throughout the year? I understand you're trying to deliver. And I wonder about timing and challenges. Is everything going as expected? I expect everything to go even faster as it was in the last 12 months. Could you please talk about that?

Of course. Let's split this answer. A large chunk of our total payments value comes from recurring payments. We have a range of digital services offered by carriers, which is the future of telecommunications. For example, we have recurring plans. And we'll be talking a bit more about the evolution of this industry, and how its evolution has a positive impact on us. But a large chunk of the total payments value has to do with more digital modalities based on credit cards where we have the [indiscernible]. We have recurrence. We have the same clients. We have antifraud services. And as we have a recurring base, we need to build this base up. So of course, if you get a new customer, it's going to contribute to the month of when we got them, but it's also going to contribute to the next month. So you have a ramp up. This is not as true when it comes to digital top-ups. But with the services -- recurring services, we gradually build up our base. So when we bought M4U, let's recap our motivation. We bought it because we were really excited with the type of problems and for you on solving. We saw that the idea of any digital channels and antifraud would unlock a lot of value. We had better conversion, better churn than other elements of the chain when they are not aggregated. But we got further away from end users, and derivative services firm for you was negative. And in under 6 months, we were able to reverse that. This was important for this acquisition to be successful. So we were already able to reverse that for derivative actions. And we implemented new initiatives. Let me give you an example. We started going into telecommunications segments where we were not present, for example, broadband. It was usually with payment slips and debit, no be used credit cards, but this is very beneficial, both for carriers and end users. So very soon, we'll be launching the first offering for broadband with this solution. Again, it's going to be the same phenomenon. We're going to start small, but then we're going to ramp up a lot over time. With Energisa, we just went into the first channels focused -- focusing on default clients. We went really well with that. And now we're going to focus on clients who are not in default. So we have these different segments and we can explore them. And with Equatorial, for example, again, we're going to work with only 1 subregion with defaulting clients, and then we're going to work with clients who are not in default. And this creates a letter. So our expectation is, we had quick integration for this company because derivative efforts were not good, but the clients were amazing. We reversed it. We were able to change course and go into the right direction. But in 2023, quarter-over-quarter, we're probably going to see a ramp up where these new things are going to gradually have an impact on things. But let me set the expectations. Whenever we announce something now, its impact is going to be very timid at the beginning. And we're going to see increases quarter-over-quarter. But we think the trend is going to be material. After 12 months, this is going to change the needle in our results. But let's set the expectations. There is a cycle here for every client we start working with, we start ramping it up. We started working with new segments, and that's when we see growth. So we need more scale and more partners so that these effects add up and then we can make progress in a business line. Was this clear your question? Yes. This is very similar to the software model, right, with recurring revenue. Yes, extremely similar. Even though, of course, we're seeing gains from total payments value. The game is recurring payments. Nicholas, do we have time, or should we wrap this up?

I think we have time for one last question. We had 2 questions in the chat regarding M&As, whether they are going to happen abroad or in Brazil and then we can wrap it up. So this comes as no surprise. M&As are going to happen when they must happen. But what I can share with you is that we're looking both at Brazil and abroad. Of course, we prefer locations that are similar and have shared affinities with our business. We look into the U.S. and Israel and other centers of innovation, of course, but it's more natural for us to see companies that may come from these locations, but which may be addressing problems in markets where we're located. Would like to play to our strengths.

We have a big bias when it comes to Brazil because right now, we think our ability to promote integration is bigger here in Brazil. But of course, we can look at operations abroad, for example, Tiaxa, which has very strong operations in Asia. We weren't as strong in Asia. When it comes to segments, it is natural for us to look at companies that are closer to our 4 lanes of operation. So yes, we are looking at software platform with the SaaS and PaaS models, which are closely connected to our clients. We're also looking into microfinance. And as Bernardo was exploring, tactically speaking, we're looking at subscriptions. And of course, we're looking at the payments. What's key here and something where we got it right is that, yes, we have this cash right now, but we can't have a parallel P&L. If we have a positive that it becomes a P&L because we have cash being generated through interest. And this is not our go as a business, of course. And if we're not able to assign it and allocate it well, we're going to give it back as dividends. But of course, we've been talking to companies, have been discussing deals, and we know that we're going to get a better return if we expect the company, so our goal is not offering dividends, but we just need the discipline, so work on it. And if we find good assets at the right price then we need to be patient, we need to be disciplined, we need to be resilient. We need to keep on looking at offers. I don't want to give you spoilers because we're very active in that, and we've found number of assets that makes sense. And many of them are being discussed and being negotiated. Of course, all of them could go wrong for sure but [indiscernible] easy step, when we are disciplined and we keep focused on what makes sense something is going to happen, this is how we acquired M4U and Tiaxa. We make many offers -- we made many offers and 2 of them were standing, they were even going wrong before they went right. So I am not going to tell you when or how, but this is our plan and we've already spot in the assets that fulfill these requirements, they're synergic to us, they have good value, they make sense and we're only going to acquire them if it makes sense cost wise, this is our strategy. The share buyback strategy is still applicable but its [indiscernible] M&As. And obviously if we fail which we don't think its the case, we're going to give dividends to our shareholders because we're not being paid to manage fixed income. So we have a very clear and very strong agenda. We believe that soon we should have new [indiscernible].

Wonderful. Thank you, Pedro, very clear. I think this is the end of our earnings release presentation. Do you have any final remarks?

Not really, but once again thank you for keeping up with us. I know in the capital market, we had 1.5 years of maximum volatility. And of course, we're attributing the right value to that. This is also a way to attract talent. But we're also thinking of the long term, the next 1, 2 or 3 years. This is our duty here -- our fiduciary duty. We're sensitive to what is happening in this industry, but I don't think will be as effective in the short term with the M&As we're going to use cash mainly not as -- not as much shares because we do have cash right now. So we're confident, volatility is the name of the game, but it doesn't affect us as much in the short and medium term. So thank you, and have a great day.

Have a great day, everyone. Thank you for being here. We had over 200 people here with us. Thank you so much. Have a good day. Take care. [Statements in English on this transcript were spoken by an interpreter present on the live call.]