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

[Interpreted] Welcome to another earnings release presentation from Bemobi regarding the first quarter of 2024. My name is Nicholas. I am an IR officer at our company, and we have our CEO, Pedro Ripper; Andre Veloso, our CFO; Joao Stricker, our VP for Operations in Brazil and LatAm. This presentation is being recorded and you can not only listen to us during the conference, but also see the speakers and the slide deck. Everyone has access to simultaneous interpreting into English, should you prefer that. There's an interpretation button at the bottom of Zoom. So let me switch to English quickly. That can be used by pressing the button called interpretation on the bottom right corner of your screen and then choosing the option English. I would like to highlight that after the presentation, we'll hold a question-and-answer session. And now I'll switch back to Portuguese. [Interpreted] Dear, attendees, right after our presentation, we'll have a Q&A session only for analysts and investors. You will receive instructions on how to be a part of that. Before we proceed, we'd like to say that any forward-looking statements that may be made during this earnings release presentation regarding our forecasts, estimates and financial goals are based on assumptions and beliefs by our management as well as on information that is currently available to us. Of course, this entails risks and uncertainties because it depends on events that may or may not happen in the future. We must understand that overall economic conditions and other operating factors could have an impact on our future performance, leading to significantly different results than the ones we're going to be talking about today. Now let me hand it over to Mr. Pedro Ripper.

[Interpreted] Good morning. Thank you, Nicholas. Good morning, everyone. Welcome to our earnings release presentation for the first quarter of 2024. Let's quickly talk about financial and operating numbers. We still have an international approach, we are in 51 countries. We are above [ 1.4 thousand ] active clients, and we now have a different breakdown. We have our enterprise clients for which we have gross revenue above BRL 500 million per year, and we have the medium-sized clients, which are below this range. We've been acquiring companies with a long tail and with a different distribution model. So we believed that we should start sharing this metric too because one of our new areas of growth will be this new segment. Last quarter, we had another highlight. We are focusing increasingly more on software solutions integrated with payment, and we are focused on recurring services. So we're working with the biggest service providers in Brazil, and we'll be sharing information on how we've been able to acquire new clients. We have 7 out of the top 10 largest recurring service companies in Brazil, and 2 of them are preoperational at the moment. Regarding our offerings, we have the same breakdown. We have 4 business lines or actually 4 industry segments. So let me go into them. I showed you consolidated information on the first slide, but here, we see a breakdown of these segments. We can see that we are growing our number of segments in every subsegment. To your left, we have digital payments, then we have SaaS and microfinance, and then digital subscriptions. As you can see, we had significant growth in the past 2 quarters for small- and medium-sized customers for SaaS. In a way, this means that we have access to the payment market in a more fragmented environment, access which we did not enjoy before. So in the next few years or in the next few quarters, we're probably going to see a share of these 1,300 clients from SaaS becoming clients from the payments segment, too. When we look at the same first segments when it comes to volume metrics, and this is more related to end consumers in our B2B dynamic, then one of our biggest highlights here is for payments. We had significant growth in the total volume of payments with our TPV. We have 38% of growth year-on-year. We also have consistent -- we have good growth quarter-on-quarter for this. We can also look at digital subscriptions. Year-on-year, we are at minus 10%. However, even though we have a negative figure here, a positive is that this is our second consecutive quarter of recovery after a very challenging year of 2023, not only in our international operations, but also in Brazil because of the sale of Oi. So we went to BRL 27 million, then we went to around BRL 22 million, and now we're back at BRL 24 million, almost BRL 25 million, which is good recovery given last year. When we look at our revenue, just like what we saw in the last quarters, we have been adjusting our revenue to have a real perspective of our growth. Our net income with no adjustments or normalizations grew 3% year-on-year. However, when we adjust it according to the foreign exchange rate because we did have fluctuations, and the real is going through devaluation or unappreciation and then we see the impact of Oi as well, which was responsible for minus 3.8%. And for the foreign exchange rate, we had minus 3.5%. But when we normalize all of that and adjust it to that, then we have 9% of growth instead of 3%. By the way, for the second quarter, we see that the impact coming from Oi is much smaller. You know that 2 quarters ago, this number was over BRL 10 million of negative impact. I think last quarter, it was around BRL 7 million, and it should be BRL 1 million or BRL 2 million for the next quarter. And then this drop will be not -- won't be significant in the near future. And then the only adjustment we'll need will be for foreign exchange rate. And then we'll have clarity of when foreign exchange rates are helping us or hindering us. So we see the behavior that we expected, and we see results in a more clear way without the impact of external factors. Now as we focus increasingly more on our payments segment, in addition to software, we have almost 36% of our total revenue coming from payments. So in addition to a 3.4% growth in our net revenue, we're also focusing now on our net revenue for payments because we believe this is going to be a big source of growth in upcoming years. In addition to our TPV, which grew significantly, our net revenue for payments grew 17% during this time. And now we are breaking it down even more inside the net revenue for payments. We can see what comes from digital subscriptions or payments. So this combination of software in payment is where most of it comes from. We also have a legacy business coming from M4U. This one has to do with top-ups. It is a mature business. There is a trend of decrease here. It's going to be less significant in the near future, but the rest of our business grows basically at 20% per year. So we're probably going to keep a good growth trend here. Let me now hand it over to our CFO, Mr. Andre Veloso, and he'll be talking about the other financial metrics.

[Interpreted] Thank you, Pedro. Good morning, everyone. Let me continue our earnings release presentation. At the top left, we can see our gross margin are actually -- yes, our gross margin. We have a 2% growth, and we have minor retraction in our margin, especially because of more expenditures in subscriptions. We had to spend more money to acquire new clients. However, when we look at OpEx on our yearly perspective, we have a 1% decrease because of the many initiatives that we put in place throughout 2023 to control expenses. This bore fruit. So with our adjusted EBITDA, we see a 7% growth compared to the same quarter of 2023. Here, we have 1.1 percentage point as a relative margin expansion. Now here, we can see our adjusted net income, including the swap impact. This is the result of our operating performance. We had 6% of growth for this metric, and we got to BRL 23.4 million in the first quarter of 2024. We also have a small expansion in our relative margin which was almost 17% of our net revenue. Now for the operational cash flow generation at the top right, we see very good expansion, 16%. We got to BRL 34 million, and we had a cash conversion above 73%. In this case, it's important to say that this number is from 2023 were a bit below what we expected because of the expenditure that we had to set up our offices in Rio de Janeiro and Sao Paulo. So if we offset that impact, then we have something relatively similar to this quarter. And then our cash conversion is above 70%, but below 73%. Here, we can see our cash balance. We ended this quarter at BRL 543 million but we can focus on the cash generation that we have for our operations here. We had a BRL 43 million expansion here. This is the result basically of unlocking working capital. We received funds from a client we've been working with for the past few months. They settled any outstanding amounts at the beginning of the year, so we were able to expand our operating cash flow. When we look at nonrecurring factors, we had BRL 1 million for the buyback of shares. It's important to say that because of the prices and because of the mismatch that we see on paper, we've been accelerating our share buyback program. We bought another 600,000 shares in April. We believe that this is a smart cash allocation at the moment, so we should accelerate this initiative in the next months. Next, we have an adjustment for the swap, which is a positive [ 400,000. ] Even though this is not very significant, it draws our attention because with a mark-to-market swap, this has had a negative impact on our income. However, as we roll it out because we have differences between the contracts executed in October of last year. In March of this year, then we see a positive impact in our cash flow at around BRL 500,000. The last expense is related to our recent M&As. In the last quarter, we had a cash expansion of around BRL 35 million, and we got to BRL 543 million at the end of March 2024. Finally, as we have been saying in the past few quarters, we still have BRL 35 million that are dedicated to the operation of payments installments. Our company wants to compensate our own cash based on our cash structure, but in the future, should we decide to use other forms of funding then we'd be able to rebuild our cash position. This is why we make this clear to you. This is why we disclose this information. Let me now hand it back over to Pedro, and he will be offering you our closing remarks.

[Interpreted] Thank you, Andre. We do have a few highlights here. It's been 1 or 1.5 years, but we have been having heavily betting on focusing most of our energy, capital and time on what we call a combination of vertical payments. Vertical payments represents the idea of using software in a given industry, but then packaging it with a payment solution so that we can unlock more value in this industry. This represents a good chunk of our business, and this has been working well. We also chose to work with recurring services. There's a segment of essential services with telecommunications, utilities, education and in the near future, health care. The good news is that this strategy has been proven to be right. We're at a good point, either with the clients that we were able to acquire recently, whether with our sales. These are prior indicators that should lead to more revenue and better results. So this is a highlight. This was a bit contaminated in 2024 -- 2023, actually, because we had many ups and downs, but we do expect to get more traction in 2024 and better acceleration into the future. We can already see the impact of that on our results and payments. We had our best TPV since we started to work with payments a few years ago, and we expect this number to keep on growing. It is also important to highlight that our most mature business of digital subscriptions which had a very tough year in 2023 is now showing signs of recovery, which is great. We believe that we still have a reasonably long sales cycle in front of us for this business. And we should still see another quarter where we see growth here. So this is a good rebound. This is a good reversal of trend. As Andre was saying, we did something major here. On the one hand, we were looking for maximum optimization of more mature businesses, but we also continued investing on fields where we have better transfer growth. So the minus 1% that we had is actually a compound effect so that we can reinvest in areas where we have better potential of growth. We could have reduced it a bit more, but we didn't believe this would be optimal for the company. So even though we only had 3% in revenue growth, our EBITDA grew 7%. So we believe that as our revenue growth in the next quarters, our EBITDA will be growing above our revenue. This is a bit connected to the nature of our business. And we have operating leveraging because even though we're growing in new segments, they have good leveraging with the same platforms and the same teams we already have. So even if our OpEx grows, it's not going to grow as much compared to our top line. Finally, our take-home message before we go into a Q&A session, I would like to say that Bemobi has had results for 10 years with a history we've been listed for 3 years. And before we became listed, we were around for around 9 years. And we basically had only 1 year where we saw drops in revenue, which was 2023. And I think in these 10 years, we only had 2 years where we saw an EBITDA decrease. I'm saying this because we have a history of lots of consistency with the EBITDA margin, with the contribution margin, with cash generation. So we do believe that 2023 was an outlier. We felt the impact of 3 external events. One of them is not really an outlier because we're going to have FX fluctuations either in favor of us or against us. But we had a war in a region where we had 6% of our revenue. And our biggest historical partner was sold. So these 2 things happening at the same time had damaging impact on us in 2023. Now the good news is that the war has now been incorporated into our expectations on a year-on-year basis. And it's been a few quarters since the sale of our biggest partner. So we see that these impacts are dissolving now, and we are getting good traction with other businesses. So we're cautious, but our good message here is that our strategy seems to make sense. And we do see ongoing improvement quarter-over-quarter. And we believe that we're going to see the same soon on a year-on-year basis because these things are connected. Let us now start the Q&A session. Nicholas, could you please help us?

Of course, so this is the beginning of the Q&A session. If you have any questions, please click the Q&A button and send us your question in writing or raise your hand, and we will unmute you. We have Bernardo from XP and I'm going to unmute him for his question. Please go ahead, Bernardo Guttmann.

I have 2 questions, actually. The first one is related to the evolution of Bemobi in utilities. I want to understand your conversion cycle. In telecommunications, this cycle between selling a solution, getting a new client, implementing things and getting revenue is slow. How does this work with the utility sector? Is it also a long cycle? You are able to get big contracts, so I do believe you have a robust backlog but you may not have converted all of that into revenue, not in significant figures. So I would like to understand the evolution curve of your revenue in 2024 and 2025 for this segment. Now if you'll allow me a second question, I have a question about cash allocation. You have a significant capital surplus. We saw this in your last M&As with a lower ticket. So I would like to understand your analysis funnel. I'd like to understand how you think about verticals and size.

Wonderful. Thank you, Bernardo. These are excellent questions. First question. In utilities, this does not have a lot to do with this industry, but with the size of companies, we're talking about large companies with a delayed timing. You need to understand that we go through 4 stages within their life cycles. The first stage is when they are not clients, and we need to get this contract. And this is a big, big milestone because "you have guaranteed revenue. You have higher revenue." Of course, you have paid rates, but you get access to an addressable market. So this is a big milestone as we enter into a new agreement. And as we do that, we're going to highlight it here. Now our second steps in their life cycle is to go from pre-operations to actually making revenue. What happens here is that we have big investments from Bemobi because we have to set the whole operation up. We kind of absorb these costs, investing on volume over time. So we may spend multiple months integrating our software to every channel from these utilities. We have an omnichannel structure, so we're going to use a system, most likely their ERP or CRM. And oftentimes, we have different systems because we have concessionaires in different regions. And we're focused on customers at the last point of the customer journey, at their website, their call center, their app, their bot, their POS' with their field agents. So during this step, we have changes in timing, very fast clients, take 3 to 4 months. But on the other end of the spectrum, we see clients taking 9 to 10 months to do this. It all depends on how prioritized we are in their IT department, but we usually have these delays. So at the low end, 3 to 4 months. At the higher-end, 8 to 12 months in extreme cases. So we have a long stage 2. We start getting accounting and management revenue next, or at the end of this stage. And then we have another 2 stages. When we get new clients, we do not necessarily have a D0. Oftentimes, we have digital and then we get the POS or the opposite. Or we start with the app, but we don't start the call center. So it's a process. As we get a new client, we keep on growing to expand the channels. So this is Phase 3. So even for the clients that we already have in operations, we should expect steps up over time. With our 2 current utility customers, Energisa and Equatorial, we still have room for improvement with good practices, both in digital and other areas. And the last stage is organic and slow. So we enter into a contract, we go into operations. We expanded to every channel accessing every client, and then we have the fourth stage, which is what we call gravity. Historically speaking, we've worked with segments that are very focused on payment slips or [foreign language] in Brazil. They represent maybe 90% of payments. Now we believe the mix of credit cards in the PIX Brazilian transfer is going to absorb 60% of this market. So as we improve the PIX transfer and as people use credit cards and they get used to using credit cards for other types of purchases, then we're going to increase that. So even after all 3 stages in the fourth stage, very slowly, you reap the fruit of macro trends as we have changes in behavior. So this was a long answer. But with Enel and Energisa, we are between stages 1 going to stage 2. And we want to have many clients at different stages because this is what puts our revenue together. And this is not very different from other segments we're going into. But it does look like to me that other segments could be quicker. So we believe their life cycle or their cash cycle is shorter. With big universities, this could be a big -- a bit slower because they are complex, but not with regular schools. Regarding your second question regarding our capital structure, we're feeling very comfortable. The deals we closed in the past, in addition to our original business have been doing well when it comes to cash generation. This makes us comfortable because regardless of the money we raised, we have cash generation. So we believe that, yes, in a way, we have a surplus of cash vis-a-vis what we need for our short-term needs. So let me see what I can share with you. We still believe that we have good opportunities with M&As. Contrary to other quarters in the past, I think now we have narrower options, and we're focused on software. Maybe payment services in industries that are more complex and where we see more value. So we think the M&A track could be very interesting, but we don't need BRL 5 million or BRL 6 million for a new company to do that. Now with the surplus, what we're doing more often, as Andre was saying, is the share buyback. We believe that at the current value, this is a very smart cash allocation. And this won't damage us, and we'll have slightly higher dividends to shareholders. This year, we had dividends at around twice as much of what we had last year. So we're going to keep it up. We're going to have a bit of a higher dividend yield. And we know that this is a good problem, right? This is a good issue. We have a very comfortable cash structure or capital structure. It's not optimal, but it's comfortable. And we're going to do that and work on a combination of very specific M&As, higher dividends, and share buybacks so that we can restructure our cash position for a better capital structure. Bernardo, was that clear?