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

[Audio Gap]. Plus I'm IR officer of the company. We have other officers here. We have Pedro Ripper, our CEO; Andre Veloso, CFO; and Joao Stricker, the VP of Operations for Brazil and LATAM. Please remember that we are recording this conversation. You have access to it. [Operator Instructions]. We also have simultaneous interpreting available. Let me switch into English. I would like to you guys know that we have a button on the right-hand side in the bottom of the screen, called interpretation, can change for English. There is simultaneous translation available. Now I'll switch back to Portuguese. As usual, I'll be reading a text regarding compliance. We would like to say that any forward-looking statements that may be delivered during this conversation regarding our forecasts, projections and operating and financial goals are based on beliefs by these officers as well as on information that is currently available to us. It entails uncertainty because it relates to events that may or may not happen in the future. Investors must understand that overall economic conditions and other operating factors may have an impact on our future performance, leading to results that are significantly different from the ones that we share here. Now let me hand it over to our CEO, Mr. Pedro Ripper. Please go ahead.

Thank you, Nicolas. Once again, good morning. Nicolas gave us an introduction, and I'm going to be brief in my introduction. Today, we're going to be sharing not only information about the fourth quarter of 2024, but also the whole year. As usual, we take a look into certain metrics. During this year, we expanded our geographies. We went into another 7 countries, especially in Europe and Eastern Europe. This was boosted by our Digital Subscription line. We also had growth among our enterprise clients, especially and also our medium-sized clients. What is interesting is that about 2.5 to 3 years ago, we decided to focus on specialized Payment solutions for some verticals. In a relatively short amount of time, we became leaders in the verticals where we were. Among them, we have energy distribution. A good chunk of these distributors are now our clients. We believe that this goes to show that our hypothesis of going specialized into industries and having better payment options with software and with processes actually unlocks value and offers a competitive edge. I think we're going to see that clearly in the next slides. So this is what we do and for whom. Right now, we have a large concentration on some segments. We have telecommunications, which is the more mature one. We have utilities, which we got started with 2 years ago. More recently, we had education, and we also have finance especially for companies, which by our Credit Score. We also have 4 revenue lines. With carriers, our relationship is basically one to one. In the case of payments and software, in this case, we do have many players here. For the client breakdown, this is what we see. We have very different numbers. Starting to your right, we have 113 carriers all over the world. This is our most globalized offering. These are 100% Telcos for mobile operations. Next, we have Microfinance. In practice, we have 2 different types of clients here. First, we have carriers. We partner with them to offer microcredit when we have, for instance, data packages for clients who run out of balance. However, in this category, we also have financial firms, which sometimes offer credit or credit cards. In this case, we offer scoring. Some of these enterprises are big banks or fintechs buying our services. We also had good progress with these clients here. And for the last 2 ones, which go hand-in-hand, we have 2 businesses, which we still report separately, but they are symbiotic. These are SaaS offerings, which have to do with digital engagement and digital payments. And with SaaS and Digital Payments, it's very common for us to sell these together. This is how we stand out compared to other payment players, which are more horizontal. Of course, we have a broader environment of SaaS clients as well. This is like a fishing bowl for us, for upselling with payments. We onboarded 481 businesses in 2024 for Digital Payments and 494 of them are medium-sized clients. We have lots of schools and lots of providers. There's also Copel right there. We have Unifique, which is another big corporation, and we're trying to reach 100% of utilities and other large education groups in Brazil. When we think about the volume KPIs for B2C, meaning the clients behind our clients, we usually measure these 4 indicators. Out of these 4, only one didn't go so well, but we're going to double click on that. Digital payments. This is the total volume that we process in payments. We had a 26% growth here quarter-over-quarter, actually year-over-year. And we also had a robust growth quarter-over-quarter. Now for SaaS, we usually use the metric of active licenses. These are the clients of our clients. We also had a robust 25% growth here. For Microfinance, when we look at transactions in isolation, we had a minus 29%. But actually, we have 2 types of transactions here. We have advanced of airtime and advance of data packages. This is connected to offerings by carriers. And we also have the scoring offerings, which are connected with fintechs and big banks. What is interesting here, which we don't see here is that the new scoring category is growing a lot, and it has a higher ticket. And we have a transaction reduction for the Telcos. I'm going to show you our ARPU is. It kind of offsets. And finally, we have user paid subscriptions. These are Digital Subscriptions. We have a 10% growth year-on-year. We also have a distortion from the ARPU. We are growing, but we are growing with more acceleration now. This also has to do with a new type of client that we have now with a higher ticket, especially as we onboard the European countries. They are different from our historical profile because it used to be prepaid. So we expect growth in revenue, which is not necessarily connected to growth in subscriptions because of this new mix. Now let me dive deeper into Microfinance. Here, we can see that the ticket by transaction is increasing 51% year-on-year because of the combination that I mentioned. In scoring, we have significantly higher results, and it grows more compared to advance of airtime, which has a lower ticket and is going down in growth. So even with a reduction in the number of transactions since we are changing the mix of offerings, our revenue is actually going up. When it comes to our revenue, we grew 20% year-on-year. If we adjusted to the 6 currencies, which we use for the first time, we had some tailwinds. So 1.7% of this came from the foreign exchange rate. And in the previous quarters, it had been negative. Now let's break down our revenues. So we had around 20% growth in the quarter. In the year, we had a bit less than that. Since 2023, especially in the second half of the year, we've been saying that we would see 2 phenomena happening throughout 2024. We would have cleaner results, cleaner, meaning void of 3 impacts that we had at the end of 2022 and most of 2023, which was the Russia-Ukraine war. We also had lots of devaluation for our currency or [ depreciation ] of our currency and what we have been saying in our earnings release presentation is that we try to reach normalized results without these effects. We said that in 2024, we would see cleaner results year-on-year. We also mentioned that our business would achieve more traction. So we can see this more clearly here. So in average, we had a 12.2% growth this year, but we can clearly see the acceleration. The first quarter, we were slightly positive. For Q2, we were double digits. For Q3, we were closer to 15%. And at the end of the year, we were much stronger with cleaner results. We can zoom in even further, even though we had better growth in subscriptions. Payments look like a softer growth at first glance, but actually, in 2023, it was really good. So we have 16% of payments on top of another year where we had very good growth. So it is significantly higher than the numbers that we have in subscription right now because if we look at a longer window, then payments are more promising and consistent. With a breakdown per region, we have an international operation that is operating really well, regardless of FX rates. So our international operation was good, and we had Latin America doing well as well. So the mix between Brazil and abroad is still growing for our international operations. This is something good that we've been looking for. We want to be more resilient. And one of the ways to find resilience is to find some level of diversification. We've been looking for diversification first, geographically speaking, so that we are less exposed to things. So this was good because Brazil was more challenging, and we were located abroad as well. And it is important for us to have synergy in our delivery, but to work with more acyclical things. So now we have a base of revenue that is way more diversified than 2 years ago. So this is in line with what we had one year ago. Let me now hand it over to our CFO, Andre Veloso. He's going to be talking about the revenue a bit more, and he's going to go into details about the financial results. Please go ahead, Andre.

Thank you, Pedro. Good morning. Allow me to continue with this presentation. First, we have the gross revenue or the gross margin at the top left. We had a 17% growth in our gross margin in this quarter and 10% this year, so BRL 118 million for BRL 434 million. We have a slight margin compression. This happens because of the growth that we had in Digital Subscriptions. It usually has a lower margin compared to other offerings. Then we have our OpEx. We had growth, but not as much as gross margin. Our OpEx was BRL 63 million for the fourth quarter and BRL 234 million for the year. We do have few things that justify this kind of growth here. First, as Pedro was saying, we had the impact of the FX rate. This has an impact on personnel and technology because these expenses are based on foreign currencies. In the fourth quarter, we also have a salary adjustment for our category. All this increases expenses during this time. Finally, we have to take into account that on the 31st of December 2023, we bought 2 companies. And one of them had a larger number of workers, large number of employees. So this kind of expenditure put pressure on our OpEx throughout 2024. Now if you take a look into our EBITDA, you see an evolution that is connected to our revenue. We have around 19% for the quarter, 14% for the year. So we have BRL 55 million and BRL 200 million. This is our highest EBITDA in our history. Now for the year, we also had a margin expansion of 0.4 percentage points. So [ our leverage ] here, we do believe there is space for that. We do believe that it's going to be nonlinear. Now we have our net income to your left. For the quarter, we see our highest historical net income. For the quarter, we have the impact of a higher level of depreciation and amortization. We also have the growth of these levels, especially internationally. When we look at the year, we had a 20% expansion. So this is much, much higher than the revenue growth. So this is an expansion in our margin. Of course, we have the [ JCP ] project. We have [Ley Dobain] project. So fiscal projects that we were working on at the end of the year. So this had a positive impact on how we did taxing. We also see our operational cash flow to your right. We had 22% growth for the quarter and a 16% growth for the year. So from BRL 41 million for the quarter to BRL 148 million for the year. We see the conversion of these results in cash. This happened because of a CapEx that is heavily focused on personnel, and we grew with less acceleration in EBITDA. So these are very, very healthy results. Here we see our cash balance. After BRL 41 million of operating cash flow, we have working capital at around BRL 19 million. Half of that has to do with the growth of our operations. The other half was used for our [ real ] installment payments. This is what we saw in the last bar -- what we see in the last part. This is in line with results that we were already reporting. With taxes, we have a bit of deviation here. I mentioned the projects in the previous slide. And now we're going to see the impact of those in the first quarter of 2025. So we would generate BRL 21 million in the expansion of operational cash. As nonrecurring factors, we also had the last installment of the earn-out of one of the assets we bought. We also had the M&A operation. We are still doing buyback operations BRL 4 million. And the other column, is the appreciation of our cash availability in foreign currencies. So by the end of this year, we had BRL 588 million in cash. This is a very robust number. And we have positive trends for our business, we had very robust results for 2024, and we have our forecast for 2025. So one of the biggest highlights during this time was that the Board approved a new dividend policy. For the next 12 months, we plan on distributing BRL 200 million. This is a dividend yield of around 16%. To put this into perspective, since the IPO in 2021 until January of 2025, we paid a lot of dividends to our shareholders. This represents 1.5x what we paid in the previous periods. We are going to have complementary dividends for 2024 at BRL 58 million. And the second part has to do with a new dividend policy of up until 100% of profit. for 2025. Pedro will be talking a bit more about this in the next slide. This is the end of my presentation. Thank you so much for being here. I wish you a great weekend. Thanks. Go ahead, Pedro.

Thank you, Andre. Good. Wrapping up, before we go to a Q&A session, I have a few reflections to share. This is certainly a quarter that shows the vision that we have had since 2023 of getting new results and getting cleaner results is now more concrete. We had very, very strong results, both for revenue and EBITDA, if you look at the yearly results and the TPV, which is a metric related to payments, which is very healthy. Same thing for cash generation. Andre was sharing some of our hypotheses. We have operating leverage. In other words, we should be able to grow the revenue of our current businesses more quickly than our expenses. This does not mean that for new businesses, we're going to do that right off the bat. But for the larger part of this operation, this is what we should keep up for the next years. Something that Andre mentioned, but it's important to highlight is that since the IPO, we've been very vocal. We've been saying that we had a very strong starting point regarding our relationship with businesses, but we were also consolidated -- heavily consolidated in one business line, which has a higher macro volatility. We believed that a way to have more sustainable, predictable growth was to diversify our operations. So of course, we wanted to use our skills and our clients, but we wanted to diversify. And in a way, in order to reach this result, it is extremely important for us to be able to buy assets. Of course, we can have organic diversification, but when we find assets that allow us to go into markets with less risk, that's really desirable. Up until now, we had 7 acquisitions, one before the IPO, 6 after the IPO. We still believe that this is a good tool for growth and that we do it well. Now having said that, in 2023, we were in a fog of volatility. Now we got out of that, we're seeing results in 2024, and we have initial results for 2025. So it is about finding and striking the right balance for cash allocation. So we'll rebalance what we've been doing so far. We've had over 11% of share buyback as a cash allocation strategy. Right now, we're going to prioritize our allocation regarding dividend distribution because I think now the company can work with a much higher dividend yield. But we are still going to have enough capital to continue our M&A strategy. We're going to focus on payments, and there's a lot to do. This is a very vibrant market with lots of changes. And we want to make the most out of this with the breadth of our business. So it's good to rebalance this strategy because right now, we have better visibility and more consistent results. Now lastly, and this could be either organic or through M&A. We see that the Payments industry is still very dynamic. We see lots of changes in new regulations, new payment methods. So we're going to keep on investing here. We may even accelerate investments in platforms and solutions here because we do believe there is great opportunity in continuing specializing. Other things could be the opposite. They could be integrating with banks more. We are going to see investments in our CapEx as we have been doing. We don't expect any big changes here, but we don't expect to reduce the investments here. And we are actively looking for assets that are able to add to our strategy. I will stop sharing my screen and we're going to start the Q&A. Nicolas, can you please tell folks how this is going to happen?

[Operator Instructions]. So we have Bernardo from XP.

Congratulations. I have 2 questions. First, regarding your pace of growth. You shifted into a payments business, and it's clear that you have a conversion cycle that takes a while, sell, deploy and then start generating revenue. In the fourth quarter, you see a more robust TPV. With annualized results, we may have hints of what to expect for 2025. But I would love to understand the new contracts that you signed. Can you accelerate even further for the next quarters? Second question regarding capital allocation. I like the distribution, the BRL 200 million. The company has a robust cash position and a good cash generation. So how are you conceiving M&A? What's the analysis funnel looking like? And what's the average ticket.

Thank you, Bernardo. Thank you for always being here and paying attention to Bemobi. Allow me to answer your questions. As you were saying, if we were flat for Q4, especially for payments, in the annualized perspective, we'd already see reasonable growth. However, of course, I'm not going to share a guidance and B2B2C is longer and we don't have as much control over it. But of course, if we take seasonality into account, and the fourth quarter is stronger, especially in Brazil because of the Christmas bonus and other things that boost not only retail, but also payments overall. So taking seasonality out of the equation, we do expect to see growth here for 2025 in addition to the annualized results. I don't want to go into details, but we have important clients with which we haven't gone in operations yet. We're going to be disclosing them soon. We also have recent clients that are still not in their cruising velocity. So we have these 2 things. We have new clients to be onboarded, and we have recent clients, which were just onboarded, but for which we can still go much deeper. I think these 2 things should bring a sustainable growth. Even if it's not linear, as Andre was saying with EBITDA and revenue, most of our revenue comes from enterprise clients. not as much average sized clients. And it is not as linear. I don't know, maybe if we have dozens of millions of smaller clients, we're going to find a flatter curve, but it's not linear at the moment. I think we should be cautious. This is a good strategy, and we've been able to acquire new clients. Regarding your second question again, we have a very broad pipeline in our analysis. But we also have a very harsh filter. I say that because we learned that doing acquisitions is not tough, but what's tough is making it work and finding synergies and getting the right returns. So it's better for us to be picky right off the bat than finding out that we are going to have too many issues because the cost of opportunity is high. So we have a high bar. In practice, this means that we've been more focused. It doesn't come as a surprise that most of the deals that we look into are more connected to SaaS and Payments. Could we see something outside of that? Yes. But if it's not something related to this, it has to be an enabler or something that boosts what we do or something that allows us to go into a new industry. Regarding ticket, average ticket. We have lots of deviation here. M&As are enablers. You want to buy a capability, you want to buy competencies. And in this case, scale matters. However, if you buy somebody to go into a new industry or to gain scale, of course, then it's better preferable to buy something bigger than smaller because the effort is the same basically. But in other words, the standard deviation is high. We can't say that we're going to have a series of smaller deals as we did in '23 and '24 because we have other deals in our pipeline. So we need to strike the right smart balance between cash allocation in new M&As and having higher returns for shareholders. Our goal is that every year, we can go through the same reflection that we had for 2024 and 2025. In 2026, we're going to go through the same thing. So we're doing well. This is the profile of our pipeline. And if we're able to do it, then we're going to have dividends that are higher. If we have a more robust pipeline, or if we have needs, then we can rebalance that again. So this is an extraordinary dividend policy. But of course, we're going to review it every year according to our results and according to our allocation strategy. I do hope I was able to answer your second question?

Yes, you were. Congratulations again.

We have another question from Maria Clara from Itau.

Congratulations on these results. I also have a question related to Payments. Pedro, could you please share about your business plan and everything looking forward? You mentioned the possibility of onboarding new clients. We also see that you mentioned a relevant client in utilities. Looking forward, is this the industry that is going to help you more with marginal growth? Now when it comes to M&A, what are the capabilities that you believe would be complementary to your business? I would love to hear more about that where you imagine you'd be able to grow to add to the business you already have.

Thank you, Maria Clara. First, let me talk about industries. Right now, our biggest payments business is the one that we've had for longer. We have a historical affinity here. It's Telcos, telecommunications. They are historical partners for us. Of course, we have an opportunity to grow with them and to increase digital payments. We are still growth engine. They are smaller percentage-wise, but with total numbers, it's still very important. With utilities, it is a kind of a sweet spot because it is good with scale, but there's a lot of percentage growth. So when we look at incremental growth, utilities is a very large industry regarding the addressable market. And our penetration is still low, given that we have clients that we haven't acquired yet. We are trying to and we are doing it, and we are just getting started with some of them. And then if we look at it as waves, we have a third wave, which is just beginning. Education is one of them. We're going to have interesting announcements soon with some very robust names that are going to become our clients. Percentage-wise, again, it's going to be very high because we came from 0, but now we have a reasonable business. So we want to keep these growth engines, and they are going to work at different scales and speeds. The smaller ones are going to be more accelerated. So we have different pipelines. One of them is not officially here, but we've mentioned it before. We have other industries that are similar to the problems that we tackle like recurring payments. One example is health insurance. This is another avenue of growth that we could explore. So our challenge is not as much addressable market, but it is time and execution. It is the B2B life with its own cycles. So we have to give a time, but the market that we chose is fairly large. Something else that I didn't mention here, and I didn't focus on it because I think it is a bit green is that contrary to digital subscription, which is in 58 countries with simple operations, payments are more complex, and you have to adapt to different ecosystems in each country. You have to look at the penetration of different payment methods and something in Brazil is not necessarily the same in other countries. However, we've seen interesting opportunities, both for telecommunications and utilities to expand abroad. We have a case that we'll be disclosing soon. We believe that it goes to show that this model could be multiplied maybe not to 60 countries, but maybe we could onboard some countries in a very focused way with the solutions that we already offer. I just want to mention that we have a very large addressable market. It is about the execution. Regarding the second half of your question, Maria Clara. These capabilities change a lot. I'm going to give you an example of something that we've done before, but it's just an example. The PIX transfer in 2.5 years went from a secondary payment method to the main star. And we have a very intense regulations agenda. So we could develop this from scratch internally, but this would take us a certain amount of time. This is a very small thing in this case, but it wouldn't necessarily be a small in other cases. So we needed 2 licenses, and we actually preferred to acquire a payments business so that we could accelerate these licenses. So now we have the automatic PIX transfer. We have the biometrics PIX transfer. We have new features because of this acquisition. We can look into new fields as well. For instance, we love Payments in a very integrated way with digital channels. So we're close to Meta, which owns WhatsAapp. We want to have very integrated payments within WhatsApp, inside WhatsApp. So this is a capability that we are developing internally through partnerships, but in M&A could make sense for that. These are just examples. But they go to show that when we become a vertical player, when we have tools and new things that are going to allow you to bring things into your portfolio, this is how you drive differentiation and you accelerate growth. Maria Clara, I hope I was able to answer your questions satisfactorily.

Yes, you have. Congratulations again.

Nicolas, are we over time?

There's a question in the chat and I think we should answer it. It is about cash allocation. They say if you're paying more dividends, does this mean that you don't have other available options?

This is a very, very good question. This question actually has to do with 2 analysis that happened at the same time. First, as I said, we take a look at the picture. Let me take a look at the movie as well regarding cash generation. When our moving picture was very uncertain, we became more conservative, but now when we look at the last quarters, and we see that we did well, we feel more comfortable. We have more foreseeability for our cash and then we can be more aggressive. So when we look at our position and we look at the results in the last quarter with a great cash generation, and we look forward and it looks like we have more foreseeability, then this is enough for us to justify the distribution of dividends. Something else that we took into account, and this has nothing to do with a lack of investment pipeline is that there is a certain profile that we prefer for our acquisitions. We are very entrepreneurial, and we love to have good entrepreneurs at Bemobi. We had a couple of small acquisitions with entrepreneurs who have ownership. And this makes a difference. And one of the ways of achieving that is not acquiring businesses at 100%, maybe you buy 50% or 60%, which means that you have the control over it, but you still have interest from the owner and you have a path towards total control, maybe through column put or other similar tools. Now the side effect of that vis-a-vis what we're discussing here is that oftentimes you have 2 different cash disbursements. So you have one single acquisition, maybe it's BRL 100 million or BRL 200 million, but then there's this mismatch because the upfront payment is not as high for the 51%. And of course, you need cash to have the call input in the future, but it's not something that happens instantaneously. So if you have more foreseeability for your cash generation and you have a bias, and not every year is going to be like that. We had M4U or Agenda Edu, where we basically paid them upfront at 100%. But when you have this kind of strategy of splitting payment, then we may fit dividends in between regardless of our pipeline. And by the way, our pipeline is very strong. But as I said, we're picky, we avoid obvious assets. Obvious, not in the sense that they are bad, but they are expensive. If you want to make a good acquisition, not only do you need synergy, but you also need to make sure you're not overpaying for it. So let there be no doubt. We have a very strong pipeline. We have lots to do and we can't control the short term, but in the medium term, we know that we're doing great.

We have one last question in the chat. Do you expect to go into real estate or condo fees?

Our vision is to be vocal when we test things out. And we know that there is a risk entailed because sometimes our competition can have a bit too much visibility. But the trade-off in this case is that this is helpful when it comes to potential clients when we're looking into an industry. So I don't want to go too much into that. But out of every industry, working with competencies that we already have we are great at recurrence. We are great at offering clients this journey. For instance, we created a payment Installment solutions that has to do with these basic services. So for recurring services and essential basic services, which is, for instance, bills that families are going to really make an effort to pay because they don't want to go without these services. For instance, power. Nobody wants to go without power. Nobody wants to go without the Internet or without a phone. If you pay for your child's tuition, you're going to pay for their tuition because you don't want them to go to public school. Now with condo fees, yes, we're looking into that, we're looking into real estate. And we have other industries that are similar. So when it comes to the fit and the value proposition that Bemobi has, there's a beautiful fit with other industries as well. And then we need to understand who the players are, if this industry is fragmented how we can approach them. This is another part of the conversation. But yes, some of our work is to find these industries. And even before we make an announcement, we talk to some players, we try to make some [ selves ] to verify if we have a good market to product fit. So yes, the one you mentioned is a yes, but we have others in our list as well.

Excellent Pedro. I believe this could be our last question. This is the end of our earnings release presentation. Thank you so much, and have a great day.

Yes, excellent. Thank you again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]