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

[Interpreted] Please remember that we're recording this presentation. [Operator Instructions] We also have simultaneous interpreting into English. We have a button at the bottom bar of Zoom to your right, and you can choose English or Portuguese over there. Let me now switch to English for the same public announcement. That can be used by pressing the bottom called interpretation on the bottom right corner of your screen and choose the option English. I would like to highlight that after the presentation of Pedro Ripper and Andre Veloso, we will hold a question-and-answer session. And now I will switch back to Portuguese. [Foreign Language] Ladies and gentlemen, right after our presentation by our officers, we'll have a Q&A session for analysts and investors. We will be giving you further instructions regarding it then. Now before we proceed, we'd like to say that any forward-looking statements that may be made during our earnings release presentation regarding future perspectives, projections, forecasts and operating and financial goals are based only upon beliefs and knowledge that is available to us right now. It involves risks and uncertainties because it entails events that may or may not happen in the future. Investors must understand that overall economic conditions and other operating factors could have an impact on our financial performance in the future, leading to significantly different results. Let me now hand it over to Mr. Pedro Ripper, who will be talking about our results in this last quarter. Good morning, Pedro.

[Interpreted] Good morning, everyone. As Nicholas was saying, we're going to go through our results for the third quarter of 2023. So now I'm going to have a more complete and more thorough introduction compared to other presentations because we've been making strides in services, and I think it is worth it for us to invest a few minutes talking about our evolution and the things that we have been changing in our offerings. Bemobi is still focused on the B2B2C model. We work with large businesses, offering solutions to their end clients. Increasingly, we have been focusing on 2 big solutions. These are software solutions, and this is what we call digital customer engagement platforms. So this is software that help big businesses interact digitally with their clients. And usually, we have a SaaS model, and it is because of these platforms that we're able to offer a number of integrated solutions through these platforms. We can highlight our Digital Payments solutions, our microcredit offerings. And especially in telecommunications, we also have digital subscription services offerings. So this hasn't changed a lot. Maybe what's changed is that this customer engagement platform became a common platform where every other offering happens. The second thing that we've been doubling down on is the understanding that our competitive edge has become more clear. We can clearly see that we are highly skilled for the services industry. So originally, historically, we've had telecommunications. More recently, we've seen strides in utilities, and we're going to talk about a new industry soon. So we're not talking about consumption goods. Traditionally, we're talking about services. We also see companies that have a more analog relationship with their customers traditionally and also an industry that uses recurring payments. So we've been specializing in this segment. Now last, but not least, we are still hugely committed to understanding the profile of our average client in emerging countries. So we're talking about clients with lower income, lower access to credit, a culture of payment installments. For example, in Brazil, we have PIX and also countries where we have higher bad debt and fraud levels. To cater to these audiences, we need specific skills, and this is different from other countries, but we're able to apply this set of knowledge to other similar countries. So our portfolio is split into 4 different pillars. This is also how we talk about our revenue. But increasingly, we've been focusing on the pair of SaaS platforms and Digital Payments. These 2 areas almost represent 60% of our business, which is major. 2 years ago, this was not as significant in Bemobi overall, so we've had accelerated growth in this area. Now let's zoom in. Let's see what we have been doing for this pair of digital platforms for SaaS and payment. Right now, this is a diagram where we see what we offer. In our original industry, we have one-to-one relationships. However, with new industries, more recent endeavors, we're now developing and expanding this solution to have an integration between software and payment. Now for the finance industry, we have more credit scoring services based on telecommunications data. And sometimes, we have Digital Subscriptions as well. So let's use the same model and let's see a split or a breakdown by industry. And basically, every industry, where we have, on the one hand, software that allows our customers or our clients to interact with their clients, And within these channels and interfaces, we have digital solutions, then we offer an integrated offering. Sometimes we have Software as a Service and sometimes we have a take rate where we get a small slice of the pie. Everything started with telecommunications, where we have 4 offerings, and we have 92 big partners. We're talking about almost 3 billion subscribers. But if we zoom into Payments and we look into Brazil as a benchmark, right now, we're talking about BRL 170 billion in potential TPV in this market. We also have historical emphasis on mobile telephone carriers around, BRL 80 billion. So this is basically where we started. So Bemobi has a global presence in 50 countries, but we started with Payments in Brazil. And in 2024, we're going to expand abroad. Right now, every big carrier is a partner of ours. And basically, as I said, almost 90% of our TPV is in these BRL 78 billion. It is still a small share given the potential that this industry has. Now if we think about a time line, we started noticing that many of the challenges that we had in Payments and digital interactions with our clients, especially for utilities and especially for energy businesses, they had many challenges, but they had the same pain points. This is why around a year ago, we decided to adapt our solution. We've been talking about this for a while. So if we look at Brazil, again, this is an even bigger market than telecommunications. For retail, we have BRL 250 billion and actually, retail is BRL 195 billion or almost BRL 200 billion. And out of this, we created a subsegment for clients who are in default and clients who are not. We do this because we have a very creative solution. Even though we're focusing on both segment's Payments, which are done, our clients who pay and clients who don't, we're focusing on residential overdue clients because it's BRL 75 billion. We are dealing with every big energy distributor in the country. We have 3. We have 3 of them: Energisa; Equatorial; and Neoenergia, which is a pre-rollout. We see growth quarter-by-quarter. And as I said, Neoenergia is in a pre-rollout stage. So probably at the beginning of Q1, we're going to start seeing results from this new partner. So we don't want to get ahead of ourselves, but we expect to bring other big players, big distributors in Brazil, and we've started prospection abroad as well. We've made progress. We were studying. We were doing a research on the pain points that we have in Brazil and how they compare to the pain points abroad. Apparently, we have some very, very positive results from this research. So what we offer here in Brazil seems to be worth it abroad too. This is why in 2022, we're going to have more initiatives, not only in telecommunications, but also in utilities where we're a step behind, but it's very likely that we're going to start with a couple of Latin American countries in utilities in 2024. So we used the same strategy we have, the Software as a Service to create a relationship with our end customer and then we have a Digital Payment platform to foster a more integrated journey. Now according to the same rationale, you may remember that we started a small acquisition recently. At the time, we had a soft signing. We hadn't really acquired this company. And at the beginning of Q3, we were able to complete this acquisition. So now 7AZ is operating in our ecosystem. This company is highly specialized in another subsegment of telecommunications, which is VSPs or ISPs actually. This is broadband. This is a large segment with over BRL 50 billion and over 1/2 of clients is in the hands of this company. It's a very fragmented market or over 1/2 of it is in ISP. 7AZ is a SaaS business. They have a relationship structure that ISPs are using to create Digital Payments in a payment journey, but they don't process the payment per se. And this is why we have opportunities with this acquisition. We have access to 187 ISPs, 2.3 million users, and they process almost BRL 3 billion in TPV. What we want is for Bemobi to be a payment solution, not only for existing customers and clients, but 7AZ is growing quickly, and they are getting more clients from the pool of 187 ISPs. As I said before, it's a small business, but they have accelerated growth month by month. We're talking about 10%, 15%. So everything shows that we have very good compatibility with our SaaS offering. And everything that we have been successfully executing in utilities and everything that we did with big carriers could be done here. Following the same rationale, for a while, we've been seeing that other segments in the service industry are similar to the segments that we've been successful at. In very broad strokes, we're looking for large segments, which would justify the effort of going vertical. We're also looking for recurring accounts, recurring payments in the services industry. And preferably, we're looking for segments where they have a long journey of digitalization ahead of them. So according to this set of criteria, we've been looking into a segment for 7 to 8 months, and we see all of these factors there, which is private education in Brazil. When we put together elementary school and upper education, we're talking about BRL 130 billion in TPV. For K-12, we have around 65% of this market. This is very focused on tuition and enrollment, but we do have other subsets. And with higher education, we're talking about BRL 40 billion. Now since the schools segment is more fragmented, we prefer a more long-tail approach. However, for higher education, we have a more consolidated market, and it is more similar to the model that we have right now with utility and telecommunications. In light of that, after a few months and after doing market research and talking to clients, we made a decision. Especially for elementary school, since it is heavily fragmented, it made sense to us to go into this in a nonorganic way. So this is similar to the hypothesis in acquiring 7AZ, which is a SaaS business with a lot of outreach, with lots of penetration. So when we compare these opportunities, we got to the conclusion that Agenda Edu would be a good business for us. We'd been keeping a look at it for over a year. Agenda Edu is one of the leaders, if not the leader for SaaS here. They have an app that is used by both families and students in schools. They have a back-office system to allow for a smoother interaction between school and families. Right now, this company is owned by the Salta Group. A while ago, it was called the Eleva Group. They are the biggest operators of private schools in Brazil. They've been focusing more on their core business, which is school admin. We've signed an MOU, which is at an advanced stage. We got an approval from the nontrust authorities in Brazil. And by next year, we're going to have this completed. This deal gives us access to a very fragmented industry, but they have access to a number of schools and a number of users. So when we use the same framework that we've been using for other sectors, this gives us access to 2,500 schools. These are their current clients. This entails over 620,000 students in this SaaS model. But above all else, in this micro universe, which is in the macro universe of schools in Brazil, we'll have access to almost BRL 5 billion in TPV, only in this micro universe. So we're going to be able to complement each other with our payment solutions, and we'll be able to use the solution that they have enjoyed so far, giving us access to a lot of schools. So this is going to be our third sector. We're going to use the same strategy of digital channels and SaaS models with Payments. Another relevant point regarding this deal, which is at an advanced stage of negotiations, was that we wanted to test the results of this -- the integration of these services. The Salta Group is one of the biggest and most efficient groups when it comes to pedagogy management and admin. So we basically used them as a pilot to try and check for the feasibility of payment offerings here. So with Agenda Edu and EduPay, we're also going to establish a partnership, a collaboration here. We're going to be an exclusive partner to them, not only for the SaaS solution, but also for the payment solution that they didn't use before, but they are going to be our biggest flagship client for elementary schools. Since they are the biggest player in this industry, not only are they relevant but they are also important because we'll try and replicate this model to many other schools. So this is the map or the matrix that we saw before. It's very similar to what we saw before, but now we have a new very promising pillar or vertical. If we think about payment journey, this is similar to utility and telecommunications. We're talking about a long process of going digital in the future. We also have challenges when it comes to nonpayment collection and other challenges that we have mentioned. So qualitatively speaking, this has been an important move. We're basically doubling down on something that has worked out before. So we're focusing on an area that brings us a lot of traction. Having said that, we can look at our KPIs. We're now in 50 countries. These 50 countries are countries where we're operating basically through our relationship with our carriers. However, as other segments grow more mature in Brazil, we want to replicate the same model abroad. This is one of our hypotheses for growth. It is very likely that in Latin America, we're going to have a more natural expansion right off the bat. But there's nothing that stops us from doing the same things abroad and outside of Latin America. When we think about our partners, we are usually B2B2C. And now we're going to have another breakdown for better transparency and visibility for our investors and analysts. We have 116 big accounts. And we're going to use 2 indicators for that, number of end clients and revenue. And then we have 187 PMEs or SMBs. These have to do with the ISPs that we're catering to right now, and the 116 are usually from telecommunications and big utilities. Soon, we're going to see schools and other companies coming into SMB and some educational clients may be considered enterprise. But this breakdown is going to give you better transparency on how we see our revenue and our partners. Let me also do a breakdown by solutions. Right now, for Digital Payments, we have 11 partners, 8 are from telecommunications and utilities and 3 are SMB partners. They are ISPs. So in the 1.5 months where we have started doing this, they decided to migrate to our payment solution. The 187 partners that we see to your right, in Software as a service for ISPs, could become payment clients too. So this is going to be interesting work that we're going to do in the next 6 months to a year. We're going to try and turn SaaS clients into payment clients when it comes to these ISPs. For Digital Subscriptions, we have 92 partners. And we didn't have significant changes compared to the previous quarter. In Microfinance, we have another 2 partners, 1 in Kazakhstan and another in Malaysia. We've made good progress. And for Software as a Service, we've had more growth. Some of it is from a Loop client, a carrier [ Megaphone ], which is 48, and then we had another 37 ISPs. They have accelerated growth and very good offering compliance. We could also use B2C metrics. So with this B2B2C approach, we see the revenue at the endpoint. But here, we made an adjustment to create a direct correlation between number of users over there and our revenue. To your left, we have the same TPV as we had before. It is our record-breaking TPV. We had BRL 1.7 billion, it is a 12% growth year-over-year. If we exclude Oi results, we've had even better growth because we lost Oi. So it basically went from BRL 1.2 billion to BRL 1.7 billion. So this is the area where we have the most healthy growth in our company. We also made an important change here. Previously, within Digital Subscriptions would include one of our SaaS services. We had a subscription model and we had decided to add it to Digital Subscriptions because of the scale of our SaaS business. However, we thought that it would be better to add these numbers to what we call SaaS licenses or SaaS users. So if you compare our numbers now to the previous quarter, the number of Digital Subscriptions is a bit lower, but the number that was decreased from here is added to SaaS. Since the revenue of these users was already under the SaaS category, this makes it easier for us to do the math when it comes to the revenue in SaaS. Likewise, we now have these users in Digital Subscriptions, which have a better 1:1 relationship or ratio with the revenue that we have in this segment. So this gives us better visibility, and it helps us create a better correlation between revenue and metrics. Nothing has changed in Microfinance. So as I was saying before, we had very healthy growth both quarter-over-quarter and year-over-year in Digital Payments. Our SaaS growth was positive and partially, this was motivated by new 7AZ clients. Actually, the clients of our clients are ISP users. We've had good growth quarter-over-quarter for Microfinance transactions. And increasingly, as I was saying in the previous quarter, we still have a trend to have decreasing numbers in user paid subscriptions, both quarter-over-quarter and year-over-year. Again, we have some impact from Oi here. We can see that in gray. But there's more than that. We had 2 significantly weaker quarters, especially abroad. We were heavily impacted by the foreign exchange rate, and we had other factors as well. For example, in the Ukraine, given the conflict, we haven't seen improvements. And we had weak results in significant countries. So yes, there is impact from Oi here, but we can't attribute all of this decrease to them because we had 2 bad quarters. In the spirit of having better visibility from now onwards, basically as a pre-guidance, we expect Q4 to be similar to Q3 and Q2, especially in 2 senses. We see that we're going to have weak results in Digital Subscriptions again. We no longer expect a reduction in our base, but we may see a decrease in revenue -- or a slight increase in revenue, maybe, but it's not going to be significant. We believe that the drop we saw in 2 or 3 consecutive quarters is going to be stabilized now, which is good. We're optimistic regarding Payments, and we believe that in Q4, we're going to have good year-over-year growth and quarter-over-quarter growth. We're also going to keep a trend of growth in the areas where we're investing the most. So it's still going to be a challenging quarter. We're going to have negative variables offsetting positive variables. But I believe that even though the quarter may be similar to Q3, in qualitative terms, we're going towards the direction we're betting on. So let's now look into our revenue. Let's make the adjustments that we've been making for 3 or 4 quarters. In Q3, we peaked the negative impact of Oi, so there's a trend for this impact to be reduced significantly from now on. Our compounded FX variation was negative BRL 2.8 million. We're close to BRL 12 million in impact from Oi. So we had a minus 5.4%. And after these adjustments, we have actually positive 5.3% in growth. When we look at this information, we have minus 5.4% without the adjustments. And year-to-date, we're basically at minus 2.7%. And these aggregated numbers do not tell the story correctly, but when you zoom in, you see that digital signatures or Digital Subscriptions pull us down, Oi pulls us down, but then we have Payments and SaaS pulling us up. This is clear when we look at the pies at the bottom right. Here's the breakdown of the company per family of services. We have 36.7% for Payments. And if we put it together with SaaS, which is hugely integrated with it, we have almost 60% of our results coming from this new strategy, which is using platform for customer engagement, which is what we have at the bottom, SaaS, plus Payments. So historically speaking, we've been betting on this area for growth. We've been investing our time and our acquisitions in it, and it's been successful. Last, I'm going to hand it over to Andre Veloso, our CFO, who is going to talk about gross margin, OpEx and income.

Thank you, Pedro. Good Morning. It's a pleasure to be here. So let me talk about the other financial items. We have our gross margin at the top left. Pedro has been describing a lot of pressure on revenue, and we see this in other indicators, too. We have a 5% reduction in revenue, which justifies the reduction of our gross margin in this quarter, which was BRL 97 million. Also, after changing our mix, our margin was pressured by 40 basis points. When we look at the accrued results for the 9 months of 2023, in spite of a 3% reduction in revenue, we were basically more efficient in every business line, especially Payments and Digital Subscriptions, and our gross margin remained stable. Our relative margin was almost 2 positive percentage points during this time. At the bottom, when we look at operating expenses, at the end of the second quarter of 2023, we had created an adjustment for our employees. And we see the results of that in our third quarter. We had a 7% reduction year-over-year. In addition to personnel, we were also more efficient when it comes to technology expenditure. Year-to-date, we had 1% of growth, and we reached almost BRL 165 million. In spite of a drop in revenue, we were able to maintain the level of expenditure because of our cost adjustments. So we were basically at the same level, and we didn't have to transfer inflation to all of these items. As a result, when we look at our adjusted EBITDA, we can also see a reduction here, not only quarter-over-quarter, but also year-over-year. Since we had gains in cost efficiency and OpEx, we saw that our relative EBITDA margin was expanded by 0.4% quarter-over-quarter and 0.3% year-over-year. So we've been able to keep our profitability at a very good level. Next, we have our adjusted net income. We are excluding effects from swapping. We had a slight reduction of 3% in our quarterly income. We were at almost BRL 27 million. Year-to-date, we had a minus 8% result. This is basically justified by foreign exchange fluctuation. In 2022, this led to positive results. But in 2023, as we've been saying, we've been having negative results because of the foreign exchange fluctuation. And this also has an impact on taxes. When it comes to our cash flow, our operational cash flow, we were able to offer almost BRL 34 million. We had a good expansion of our cash conversion to a level that is above 77% because we've had lower investment. This is basically a rationale for the numbers that we have year-to-date. In the first and second quarters, we had nonrecurring payments to set up our offices in the Sao Paulo and Rio de Janeiro locations. In the second quarter, we also had to buy something for the utility operations, which wasn't here for the third quarter. This is why we changed our margin for our operational cash flow compared to 2022. Finally, we have our cash position balance. In September 30, we had a minus BRL 8 million. But this is basically justified by 2 big items. First, to your right, you see one-off expenses. These are minus BRL 16 million during this period. We had a share buyback and we spent BRL 9 million. We also had a swap adjustment for the first rollout at around BRL 5 million. And we have M&A expenditures which was minus BRL 2.5 million. However, it's important to look to your left. Look at the working capital that we have been using for our utility operations. And please remember our business model. For purchases made installments in your credit card, we pay our partners immediately, but we receive our receivables over time. This is the model we've been using. This is something we've chosen. This is how we can monetize and make the most out of our cash position since we have over BRL 0.5 billion in our cash position now. Now if we think that this no longer makes sense, then we're going to get this cash back to the company. Of course, we're going to have to update it. So all of these 2 things already offset because it's BRL 40 million. Let me now hand it back over to Pedro. Thank you so much for being here. Thanks.

Wonderful, Andre. Let me try and deliver some closing remarks and then we'll have a Q&A session. We've been trying to create more visibility and transparency into the future and to avoid surprises. We believe it is very important for us to be as transparent as possible. So Q3 is aligned to what we had discussed before. Along the same lines, I think it is important to say that the Oi migration is still going to have impact in Q4, not as much, but it will. I also mentioned Digital Subscriptions, and we believe that the decrease that we have been seeing is going to stop and we're going to stabilize. But we won't have a rebound in results. Clearly, Digital Subscriptions is now enjoying a smaller base compared to the previous year. And as I said, most of this is offset by Payment Solutions, which is growing. When we think about Q4 results, we're going to have more visibility for 2024, and we're actually way more optimistic about 2024, because these significant impacts that we had for 2023, especially when it comes to Oi, will be heavily reduced in scale. We still expect BRL 16 million to BRL 17 million coming from Oi, but this is under 1/3 of what we had to absorb in 2023. So we expect BRL 15 million to BRL million. So we're feeling optimistic. We believe that 2024 will be significantly better than 2023. Because in 2023, we did a lot, but it was actually offset by other negative results. We had a net negative effect from other things. Now Digital Subscriptions are still relevant for us. We're not letting go of this business. But we do believe that in this business, there's more volatility than in other areas. This is why we're focusing a lot on SaaS and Payments because we think we're more perennial, and we think we're able to grow more aggressively there. However, as I said before, it looks like we've stopped the bleeding here. We've stopped the decrease, which was coming from Oi and from abroad. Our challenge is to now figure out if we can get this to better levels. We're going to face this challenge next year. So it's so hard to forecast what is going to happen. Also on Payments, Payments have become a big chunk of our business with SaaS. And we don't think this is going to change in the near future. We're getting started with Q4, and we have good forecasts. We think we're going to have growth quarter-over-quarter and year-over-year. It's important to say that this growth doesn't come only from utilities. We still have telecommunications, which is by far significant here. We've been making good progress with our partners when it comes to digital top-ups. Joao Stricker is leading all of these efforts in Latin America, and they've been making progress, too, with credit cards, for example. It's been gaining traction with end users. As a result, carriers have been changing their offerings to focus on this too. So we have 2 different lines of growth here. We have a more mature business of carriers in Brazil, too, which is helpful, and we have utilities with a smaller absolute base but with very elevated growth, at least for the next couple of years. For education and ISP, we're going to see an impact here. In Q4, we truly believe that the problems that we've been solving and tackling are very similar to these companies, these businesses. So we're going into this new segment. We're going to start slowly with ISPs when it comes to scale, but there may be accelerated growth. We're going to start with Q4 and then the next year. And of course, we still need to close this deal. We are at an advanced stage, but we got a pre-approval from the antitrust authorities in Brazil. We believe that next year, this new line of business could be surprisingly good in Brazil. And also in Latin America, it seems like we have a very similar situation. So this could be a potential area. As Andre was saying, we have a very good cash position. We allocated some of it for buybacks, and we do believe that this is good capital allocation. You may remember that we had a share buyback program, and we intend on continuing with it. We truly believe that this is good cash allocation. However, of course, M&A is also a good option as long as we have strategic synergy and as long as we have prices that make sense. So we're looking into more assets. We had 7AZ. Now we have EduPay. And we have other players that we're looking for that could help us boost our growth. Finally, at the end of the day, when you look at our top line, we have very shy results. We're basically taking a step sideways. However, along the lines of what we've been discussing, we're trying to work on our mix of revenue to become more resilient, because we're spreading our revenue in a larger -- or to a larger number of clients because with the B2B2C model, sometimes we're too focused on 2 or 3 clients. But as we have hundreds of clients, we become more resilient. We've been getting better at this, and it's going to be even better in 2024. And with Digital Subscriptions, this is a business that is very profitable when it goes well, but it's more volatile as well. We want to have more revenue in more stable recurring revenue because then Bemobi will be better at having foreseeability into the future. It's going to turn us more predictable. So we had a weaker quarter in quantitative terms. I'm not going to avoid this word, but we have a better quarter in qualitative terms. We've been seeing new clients. They have been bringing us revenue and we've been getting progress here, making progress here. So I'd like to stress our optimism, especially for the past couple of months. Great. We can now start our Q&A. Nicholas, can you please give us some pointers.

Of course, Pedro. Thank you. [Operator Instructions] Pedro, we're going to start with a question from XP. We have Marco Nardini here. Marco?

I have 2 questions. First, regarding acquisitions in education. I think this is really interesting. I think there's significant potential here of expanding our addressable market. Can you please talk about our expectations regarding timing, size and synergy with other Bemobi businesses? My second question has to do with your expectations regarding apps and games in the international industry. Do you expect an acceleration there? And what kind of initiatives have you been implementing for that?

Thank you for your question, Marco. And thank you for being here again. Let's take it step by step. In education, we see 2 types of opportunities when we think about 2024. We've mapped one of them. And the other, well, we are getting started with it. There's one that's the most obvious. So if we're able to close this deal, and we believe that will be, is to continue growing with the SaaS business. We have accelerated growth there. And to be honest, this is a small business. It's a small business. And even if it grows, it's unlikely that it's going to be significant for Bemobi. So I'm talking about SaaS. However, if we're able to convert a significant portion of these clients into Payments services, then I'd say that this business could represent 1/2 of the size of utilities and utilities in 2 or 3 years could reach the size of telecommunications. So we're talking about 1/3 of telecommunications or maybe 1/2 of telecommunications in 2 or 3 years, if everything goes right and if we do it quickly. So right now, this business is more focused on SaaS. The EduPay offering, which we're buying, is very good for point stability, but we still have product gaps. We're going to have to complement it with the solutions and offerings that we've created for other segments, either to offer better fees or to offer better modes, for example, payment installments or maybe to have recurrency in anti-fraud tools. So we can leverage this with the solutions that we already have. So we don't have to reinvent the wheel. Many of the things that I'm describing here already exist, and they have been deployed across industries. But we do have to do our homework to create a very smooth integrated offering focused on schools. Realistically speaking, I think these payments are going to happen in the second half of the year next year because we have some homework to do. Maybe this could happen earlier with the Salta Group, but it's unlikely. I think we're going to see the results in Payments for this vertical only in the second half of the year because we need to close the deal, we need to do our homework. We need to make adjustments and then we're going to have a good offering for those clients. 90% is still Payments. And I think we can use that as a reference. Now when we talk about Digital Subscriptions, if we break it down, many things happened at once. So let me talk about the international market, where we had the biggest negative impact and indeed, at the end of the day, Brazil and LatAm didn't do so well, too. Joao will be talking about this. But let me talk about the international market. Abroad, we had the perfect storm. We had foreign exchange depreciation and we had almost 50% of depreciation between the real and the dollar. Also, it doesn't seem like the war is going away anytime soon, so that's another country where we usually perform well and we didn't in this quarter. So Marco, to be more conservative, I'd say that we're going to see a gradual improvement during the year. I don't think this improvement will be significant in Q4. I think we're going to be stable or in 2024 actually. Maybe Q2 or Q3 will be a bit better. But honestly, I think it's unlikely that we're going to go back to the levels that we saw at the end of 2022. Brazil was also not as strong in this quarter, but Joan has more information about this. What do you expect Joan for Brazil and LatAm in the next 6 to 12 months?

Of course, Pedro. Good morning, everyone. I hadn't said hi yet. Let me talk about Brazil. As Pedro was saying, in the last quarter and at the end of the year, we had a worse performance in Digital Subscriptions. We had deacceleration. However, we're going into more stable results. So for the end of the year, we expect more stable results. And in Brazil, the telecommunications market has changed with the Oi consolidation. So the market is working on that. And sometimes, when this happens, when changes happen, we have more limited access to a customer's wallet. In 2024, we expect to see something similar to what we're going to see now. In LatAm, we had very strong growth throughout the year. We haven't explored or penetrated this market as much. In Brazil, we have basically 100% of presence. LatAm, there's still room for growth. We increased this growth in 2023. We're still growing. But we want to continue growing in 2024. This is what we expect. This includes new clients and new products or offerings, but also operational improvements. We reinforced our Latin American team. Recently, we're focusing a lot on Latin America, and we have short-term opportunities in Digital Subscriptions. So I believe in Latin America, we have this opportunity for growth, which still isn't as significant in our results, but it's important to keep us growing.

Marco? Were we able to answer your questions?

Yes.

We have another question from Gabriela Moraes from Itau BBA. She's from the team of [ Charles Kabuski ] and [ Christian ].

Great. Congratulations on your results. I have 2 questions here. First, regarding Digital Payments. We saw very strong performance in this quarter. So how much of this is related to the utilities business? And when it comes to this business, can you please give us an idea of your evolution when it comes to the pace of deployment with partners and also prospecting new partners? My second question has to do with the evolution of margins. We saw an interesting evolution of margins in this quarter. Could we expect an evolution in margins every quarter from now on?

Great. Thank you, Gabriela. In utilities, in absolute numbers, this is still dramatically smaller than our Payments in telcos, which is to be expected. We've been with telecommunications for 4 to 5 years and utilities is a new industry. However, this is already significant. Andre and Joao, I'd say that we have 10% to 15%?

Yes, that's about it.

So in a very short amount of time, with only 2 distributors, we already have 10% to 15%, and we have a very healthy margin. Let me talk about growth for this business. In simple terms, Gabriela, we have 2 big indicators that we need to keep an eye on. First, adding a new client or a new region because then your addressable market increases. Then we have a maturation time between closing the deal and launching the offering and it's not a short amount of time, sometimes 3, 4, even 6 months. We have a client, which took us a year. And again, this is critical. If you think about utilities, of course, we need energy to be distributed properly and you can't make mistakes when you're collecting from people. So these are critical processes. So you run tests, you run pilots. You do a lot of things before you actually turn the switch on with a car process. So we believe that we have a good pipeline. We're going to work with the biggest energy distribution group in Brazil. They are the size or even bigger than our current partners, and we have a very strong pipeline. I'd say that with every big distributor, we have something with them. Maybe not all of it, and it's expected to have to build trust. Sometimes we conquer a channel or a specific area and as we're able to deliver on it, then we earn their trust. Equatorial is a good example. We were working with a very small region with Equatorial. Then they had a second bid with 60% to 70% and then another bid for Goias, which is a region that they got from Enel. And we were able to get it too because as we were executing well, we got the whole group. So we have the whole group when it comes to Energisa. We're excited we have a good pipeline of clients. We're at an advanced integration level with them. It's likely that we're going to make revenue from them. And I won't share any names because we need to really close the deal. But it's very likely that we'll have engagement with the top 6 or 7 biggest players in Brazil for this industry. We're also talking to 2 international players. So in addition to revenue, we want to prove a very relevant hypothesis here. We have high default here. We have high levels of payments installments, and these are habits in Brazil. But we want to test our hypothesis in other countries like Chile, Colombia and Mexico. So Gabriela, yes, with utilities, it is likely that we're going to more than double or almost triple numbers next year. And please remember that we also expect telecommunications to grow. We're not saying that telecommunications is stuck; it's not. But obviously, we have different levels of growth because with the telecommunications, we have higher penetration, we're at every major player. So we're going to see more growth with telco as carriers become more digitalized. We also have new telco projects, and this is good. This is interesting. We're exchanging ideas. And in utilities, we created a model for payments for clients in default. Joao has been working with this in the telecommunications segment, too. And we took digital channels from telco to utilities. So we're able to exchange best practices. And this is why it's great to use different verticals that are similar. Now you asked a question about the margin. Now, I don't expect big expansions in our margin. There is some space for it, but I wouldn't find it realistic to expect huge expansions because we're new -- we have new clients, for example, ISPs. They may be huge in the future, but their scale is very small right now. With education, we could also have a gross margin that is similar to the rest, but we are still getting started. So we need to keep on sowing for our future and especially to accelerate our organic growth. We don't think it's worth it to maybe increase our EBITDA by 2 or 3 points. But this wouldn't help us with our growth at Bemobi. So we're very focused on costs. As Andre was saying, we were able to reduce our costs in this quarter vis-à-vis the rest of the year. But we are truly focused on reassigning our team to more promising fields. 70% of our team is for technology and product. So I wouldn't model a margin expansion in the short term because our goal is to reinvest in this potential synergy to open up lanes into the future. And maybe in the near future, we'll be able to change the foundation of growth for this company, which has always between at 15%, 20%, 30%. And in the last 1.5 years, we've seen different results. So our goal is to manage the balance between margin and growth.

Nicholas, we're over our time, right? Maybe we have one last question. If we have one.

We can have one last question. The last question we see in the chat is something you mentioned in the presentation, but it has to do with the M&A scenario. What do you think? Is it more favorable?

Let me be brief. Let me tell you what has changed and what is the same. What's the same is that we have an expensive capital right now. And we need a higher level of safety investments to allocate capital. Depending on the deal, we have capital costs over 20%. So you need to be very sure to do that. So this makes us pickier. This hasn't changed. The cost of capital has been the same for a while. Now what I think has changed to the better is the following. These things are cyclical, and we have a hotter pipeline right now. For example, we looked into education. We mapped this industry, and it basically took us 3 to 4 months to get to this deal. And usually, we keep an eye on businesses for 2 or 3 years. And it hasn't been the case with Agenda Edu and EduPay. In this case, we're going to continue the acquisition of schools, and we saw an opportunity. We've seen other things along the same lines. Companies that are not tech businesses, and now they realize that tech is not their core business, but then they have some very interesting things. And interesting assets become more accessible at a price that makes sense. So we have a hotter pipeline compared to the previous quarter. I don't know if this is going to lead to more deals. I don't have a crystal ball, but I know that the pipeline is much hotter compared to the previous quarter.

Great. Thank you. So this is the end of our earnings release presentation. Thank you so much for being here, and enjoy your day.

Thank you, everyone. Take care. Enjoy your weekend. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]