Text S.A. (TXT) Earnings Call Transcript & Summary

Hello, everyone. Good morning. You are traditionally welcomed by the IR team, Marcin Droba and Lucja Kaseja. For the first time, we, as the company, are the host of the meeting. We will see if this convention will work, so it will be great for your feedback. The plan is that we will give you a presentation, which will be followed by the Q&A. And we estimate that the presentation will take us up to 30 minutes, maybe less. And then we will jump to Q&A session, which should take us up to some 40 minutes, of course, we will see. But starts -- that's the plan. And I think most of you already know us very well. So after a very brief introduction, we just move on to discuss the results. And yes, that's it. So let's start. You can see our vision didn't change. Our mission is still the same, and LiveChat is also still the same as the previous meeting. So we have a global SaaS business. We're generating some 40% of our business in the U.S. We based on B2B subscription revenue model. Our unique customer acquisition model allow us to achieve some sustainable and high margins, which is very important for us. We are -- if you look at our shareholder base, it's still led by consortium of the co-founders and key managers. We are a dividend company. And currently, we have 4 products in our portfolio. And these 4 products are LiveChat, ChatBot, HelpDesk and KnowledgeBase. And Lucja, the floor is yours.

Thank you. Good afternoon, everyone. I'll guide you through our annual results, and also I'll point out some of the key things in terms of our quarterly -- that means Q4 results. When it comes to revenues and MRR, the first thing is that in U.S. dollars, our annual revenues increased by 20%. If you compare that with the revenues in Polish zloty, that is actually plus 24 3%. And this is actually the benefit of recalculating the revenues to Polish zloty. But what is more important and what we are looking into our monthly recurring revenues, so that means the subscription revenues that we get and this increased from $4 million at the end of March 2021 to $4.64 million in March 2022, that is an increase of 15.3%. And an important distinction here is why exactly the revenues -- the annual revenues differ and the MRR revenues across all products, why this growth differs. This is due to the fact that we booked the revenues that we get also in terms of the longer-term deals like annual deals. We booked the revenues for that in the quarter when we get it. So it's only cash basis. Hence, those differences in the growth. And you can see that our annual revenues over the last years have increased and especially the last figures were important to us. And we get a good rates of growth. They were even multiplied by the fact that the pandemic started and the use of our products was even more -- the products were used even more. And also we slightly go into the mid-market, so that also with the help of the sales team, we are able to attract more customers and not only those [ through involved ] marketing. But also, it is important to look at monthly recurring revenues and the growth that we get there. You can see that between 2020 and 2021, we got a growth of 36%, that is almost doubling the growth in 1 year. And after that, so this last financial year, we are back to our stable growth of about 15% this year. And we also have to show the high profitability that we have. And although it is still high, it declines over the last years. This is mainly due to the cost increases. So the operating side -- operating cost side of our business increases. And that is mainly due the fact that we are expanding the team. Last year, we got a growth of 24% of the team, so from 212 to 268 people. And also, we are under the inflation pressure and the pressure on salaries in IT sector. So that means also that we had to increase the salaries. But this is the sacrifice that we are able and willing to do because this is actually our R&D. So the cost of investing in the product is actually hiring and taking care of the developers. Actually, the people on the product and technology side, on our team, they -- that is 55% of our team. And also, when you look on EBITDA margins, you can see that they are also under pressure, and the reason for that is a similar one. When we look specifically into annual financial results, you can see the effect of higher operating costs. So the growth of -- on the sales is 24%, that of EBIT and net profit is on the level of 19% -- 18%. And actually, when you look on quarterly results, you can see -- can I have the next slide, please? When you look on the quarterly results, you can see that this quarter was under a huge pressure of operating costs. And on top of that, also we had a donation to PLN 1 million to Polish Humanitarian Action, that also decreased the profit at the end of the quarter. And here to mention why exactly we have such fluctuations in operating costs. There are 3 reasons, mainly the team expansion that I have already mentioned. We also have quite variable cost of the partner program because it depends from quarter-to-quarter whether we have customers coming through that channel of acquisition. And also not exactly this quarter, but when you compare it to a year ago, the cost of the foreign exchange on the operating -- on the cost of operations also has an effect on our financial results. We are still -- we still have a very good cash position at the end of the financial year. We were left with PLN 56 million. And already, we have a proposition of the Management Board on how to split the net profit for a year. But this picture is influenced by an advanced towards planned dividend that was paid out at the beginning of the year -- the calendar year. Last thing I want to talk about is actually the revenue split by products. You can see that ChatBot has a share of over 5% and HelpDesk 1.4%. This is important because it is actually a change to last year because last year, the products together, they had a share of 4.7%, now at 6.7%. So it's an increase of 2 percentage points. And this is the direction that we want to go to. And also, when -- I'll show you the growth of revenues in particular products, that's the next slide. You can see that, obviously, ChatBot has helped us there increasing the more quarter-on-quarter, but -- and also annually, although this is a slightly slowdown to previous quarters. Any change is that actually in the last quarter for LiveChat was quite successful because this growth was higher than the annual growth rate. But this proportions also will change for some other reasons. We have been working on pricing changes and actually, in case of HelpDesk, this is already -- we are already after the price change. So at the end of May, we got rid of the lowest pricing plan a starter plan, and we increased the prices for HelpDesk from USD 24, if you pay annually, to USD 34. Also in the coming, not even weeks, maybe days, there will be a change in the pricing of KnowledgeBase. So that's the second product. And also, we are thinking of and discussing it within the company about the changes on ChatBot and LiveChat products as well. That is a small summary of the financial part of what took place in the last year and the quarter. And now Marcin will guide you through the KPIs on operating side already in Q1.

Thank you, Lucja. So as you know, we published on Friday preliminary results for Q1. I think that quarter was quite strong for us, and you can see that was another quarter of growth. Here, you can see revenue. Of course, as Lucja said, revenue was mostly based rather on cash flow in our situation. So we have this one quarter of -- without growth, it was Q3, because the previous quarter was inflated by very high annual revenues -- annual payments. And now we -- going back to the normal, we can say a normal situation without any kind of fluctuation, and we have next quarter of the growth. And here, you can see, MRR -- in case of MRR, these annual payments are split between 12 months and you can see that there is no contraction on that chart because the MRR is growing very constantly. Interesting thing about geography actuary -- of course, there is no huge change in geography. But if you look at the new customers, the Asian markets are very strong. So we have a lot of new customers from Asia actually. The U.S. is still biggest market for us, obviously. Interesting fact that the market, which is weak actually for us is in Poland. So Poland, of course, is not a big deal for us. But it looks like Poland dropped from #5 to like #12 for us, if you look at MRR currently. Definitely these numbers for this quarter were driven by the volume. So it was another very strong month of quarter end and the last month also was very strong in the term of net customer acquisition. In the June alone, we have almost the growth -- the net growth of the number of the customers was almost 500, very strong results, without signs of some seasonal weakness. So we still can expect that there will be some seasonal -- that July can be seasonally weakened. But for now, actually, the market is still very strong. I personally expect that end of the quarter will be much weaker. Maybe because of the Asia, it's definitely still very strong. Definitely that you can see that ARPU is flat. In the case of LiveChat, you can see that this growth some 2 years ago, which was achieved, due to change to pay per agent model is still here. But if you look at this chart, our traditional chart about initial ARPU and ARPU -- definitely initial ARPU is under some pressure maybe because of the geography, maybe because lower segment of the market is so strong. This chart doesn't mean that we don't have a big customers, we have, but this ARPU is water down by a very, very big number of smaller customers. But at the same time, despite this contraction of the initial ARPU, we are able to protect the whole ARPU. You know that ARPU is growing your customer's life cycle. So this trend is also here. What's more in the initial ARPU, you can see all the initial discounts. So definitely, we looked at putting ARPU higher is now very difficult, but we are able to protect this level. And as Lucja mentioned, we definitely look at the prices and we're discussing and at the level of the prices. We changed our pricing model to pay per agent, but actually the price of the LiveChat didn't change for some 7, 8 years. So that's a lot of time. Actually, the product is much more advanced. So I think we definitely should be able to adjust prices at some point. And KPIs for ChatBot, you can see a very stable growth of the customer base. And of course, which is very important in the -- if you think about ChatBot, the initial ARPU is very high. We -- as you know, we introduced new prices -- new pricing plans at the beginning of 2020 and the impact of this change is still visible. And definitely, we can see that ChatBot is giving a lot of value, especially to bigger customers. So I think there is still some more potential for the graph here. And the news on dividend, as you probably know, the Management Board announced that it would recommend to AGM to allocate most of the profit to dividend and you can see that definitely. Well, as usual, we plan to pay out a [ recurring ] dividend. And some key events is, you can see some events we already discussed during our previous meeting. So I would like to point out to few of them. Definitely as discussed already, we changed our pricing of HelpDesk, and we plan change very soon for KnowledgeBase. I think that's a question of days in the case of KnowledgeBase. We launched LiveChat Incubator, which should help us to expand our universe, our ecosystem of our expansions, our add-ons and integration faster. And the last but definitely not least thing, we started, as CEO stated in letter -- in CEO's letter, we start to work on new products. Unfortunately, I can't say much more at this point, but it's definitely products, not the one product, and definitely one of these products is more advanced. And I hope I will be able to share more news on that maybe this year. Fortunately, hopefully, this year.

As I can say that we have some questions, and we are -- which is great news. We are ahead of schedule, so good work for now. Let's look at the chart. So hello, Konrad. Thank you for the questions. So now we will answer at last. We try to answer for the questions of Konrad Ksiezopolski from Haitong. One thing not related with the results. Thank you for the update webcast. I like talking with you, but it would be great if we get firsthand update with the management team. I believe it's not really difficult. Okay. So a question about management team. So as you know, that's our policy for now. We really hope that when we -- there will be some really important news we'll meet in the broader -- in the broader company here, but definitely no, no, no huge news today, just update. That's the one thing and definitely that's our policy for some years. So I'm in LiveChat for some 4 years. And that's how we're doing things, but definitely we've some great news, we've some very important news. I hope we'll be able to meet in broader company. Now with the update on the results traditionally we're meeting in that company. So the...

The second question was, what was the reason behind the pickup in net adds in the last quarter, any particular marketing client acquisition initiatives led by LiveChat. The way our acquisition process is structured is that actually, we do not have that much influence over the results. So we definitely had a partner program, which was very active in our clients. Also, it might be connected to the fact that we have slightly modified the way the partner program works. And most active partners are very much incentivized in terms of the share of revenues that they get, they can get up to 25%. So I believe that this is a good incentive for them to work harder. But there is not specific marketing action that was done in the last quarter.

Definitely, also, if you look at this new customer, as I said, the Asian markets also are very strong. So that's interesting thing. It's not quite new, but definitely strong, strong, strong markets, strong demand from this side. Also, we didn't discuss churn. The churn is also good. It's not like huge change, but definitely now, we can see some churn level below this historical level of the 3%. Net MRR chart is also not bad below this 1 referral persons. So it also helps somewhat. But of course, the demand at a strong demand is the #1 reason. And the next question, what level of price increases you consider for LiveChat and ChatBot?

Those changes are not decided yet, but what we are thinking of is that, as Marcin already mentioned, we have not changed the prices for a pretty long time. We only changed the pricing model. So if we do make some changes, they will be more crucial. I'm not saying that the price change that took place in HelpDesk that was almost 50% increase is an indication of the price changes for our LiveChat. But if we want to make some changes, there will be rather higher than lower.

But, no decision. So the next question, headcount keeps growing, what is your targeted level of headcount in LiveChat? Definitely, we think that the growth will be lower, that you should expect lower growth. So I think that you should expect -- well, I think 300 people is level at some -- you should expect for some time. But definitely you should expect lower growth, not because we don't have enough money for that or we are not willing to invest, but definitely, because we are rich, we are much closer to that target level.

So simply, it will mean that we will be limiting team expansion, and you are not supposed to see the growth of 25% that we used to have in the last year.

I think we have summarized [indiscernible]. So [ Jorge ] hello. It's great to see you. It's great to have you here. I hope you're fine, and we're waiting for your questions. You are mute actually?

Okay. Can you hear me? Sorry...

Yes, thank you.

So just a couple of questions from my end. So I mean there's a lot of talk about inflation and recession all over the world. And you're especially being in the U.S. and that's -- those 2 things are a source of concern. You had a very strong quarter, but have you seen anything in the data that suggests that companies are struggling and probably there's going to be a deceleration down the road?

I think one negative sign. One negative sign is initial ARPU. It can mean that a bigger organization, now slightly withhold some investment. So I think if you now look on not some in press, news or some -- but for the hard facts, hard number, we have -- we can see on our books, the initial ARPU is -- can be persist as that kind negative sign. But I think if we're talking about numbers, we're talking about something we have in the books, that's all.

Maybe just one thing that we see different growth dynamics in terms of different markets. So Asia, as we already mentioned, is definitely growing much faster than the overall MRR growth. And the remaining markets, like the English-speaking markets, they might be slightly lower growing, but still this 15% increase of MRR, this is something that we see also now in the following months.

Yes. So actually, it's interesting fact, Asia is gaining ground, is gaining shares in the whole revenues. U.S. is losing. We are concentrated on the U.S. as part of our strategy. But in the last quarter, in the last few months, actually, the share of the U.S. in our revenues were slightly falling because of so strong Asia.

That's very helpful. And then just my last question. So what are you doing in terms of cross-selling? So where clients who have LiveChat, how will you convince them to have ChatBot and HelpDesk and KnowledgeBase? If you can talk a little bit about that.

So that is mainly the responsibility of our sales team, and they are actually working hard on it because part of the work is to gain new contracts and -- but also they very much work on cross-selling. And they -- in the last year, they actually have managed to conclude over a couple dozens of contracts that included both of the products, so LiveChat and ChatBot. But also some of the -- there were contracts where they were able to sell all 4 products to clients. But this -- for this to work, we have to have much bigger clients because actually for decimal and medium-sized, there is no point of really having the 2 of the products if they have not enough traffic, for example, on the website or across their channels. So this cross-selling will come more with the bigger clients.

So for now, I will try to [indiscernible], but let us know if you will have some more questions. So thank you for that. And we have some more questions on chat...

We actually have one from Konrad...

One more from Konrad.

So could you share with us what is the pace of headcount cost growth in the last quarters? Is it around 10%, 15% or faster? So definitely, there are 3 things that took place in the Q4 of our financial year, so that means Q1 of calendar year, the growth of headcount, so the number of people, then the inflation. Well, maybe not inflation, pressure on the IT sector. And the third one was the effect of the new Polish deal. So altogether, those increased the cost of the team by more than 15%.

So I hope that answer your question. One more from [ Arjun ]. Hello? Has there been any change in competitive environment with decreasing valuation of tech companies globally? What would be the impact of Zendesk sale to private equity? So of course, if you think about that kind of transaction and when we think about some valuations, I really don't think that, that impact competitive landscape. Even, of course, you can think that some companies, we have limited access to financing some other may be spent less for customer acquisition, which would be good. But honestly, I really don't think that's changing anyhow. And if you ask about Zendesk, of course, we are not commenting that but really, I don't -- that the question is, is that changing the strategy? Is that changing the go-to-market strategy? We don't know anything about that. So of course, that was something very interesting, but I don't think that change anything.

At least for now. The interesting fact is that if you ask us the question about the competitive landscape, a few years back and now, the answer will be the same that there are around 200 providers of LiveChat service and that there are new companies entering the market and leaving market as well, but it hasn't changed our position that much.

So yes, definitely. A lot of things, of course, happening, the competition is very strong, a lot of providers. We still manage. So that's all. I think at this moment, that's all question from the chat. If you prefer to ask questions, not write questions, but ask questions, you can raise your hand. If no, that was brief, which is good, which probably means that you really know our company very well. And actually, as you know, that's boring business. It's a subscription model. That's really nothing, nothing, nothing happening. The business is still going on. But we have some new questions from [ Max ]. How big the FX [indiscernible] exchange rate on the margins in the fourth quarter of your financial year?

It actually had a very marginal one because on the operating costs, it was only PLN 200,000 as a cost. So it was negligent actually this quarter. When you compare that to the fourth quarter of the previous year, the effect was quite the opposite, that was 600,000, I think, which was actually favorable. So that decreased the costs.

One more from [ Arjun ]. Thank you for that. How long can we continue this 20% growth we have delivered? How long is the runway, 5, 10 years? So of course, that's a good question. That so-called hundred million dollar question, actually worth much more. Definitely, it saves lot of time on that market. So you can see that definitely, if you look back, the pandemic gave us kick. So the growth was like -- it looks like we met 2 years in 1 year, and now we are back in the normal. I think if you think about the MRR, and we definitely like to look at MRR is that, I would say, normal situation for us. That sounds like normal growth for us. And of course, the situation of the market is dynamic. But on the other hand, we have new products, the small products when growth is faster than should -- growth should be faster in the future. So definitely, we can't on new products. We definitely still, I think, on the very beginning, on our quest to go to the upper market. So as you know, no forecast, no forecast. We are not forecasting, but definitely we have hard numbers for what is going on here. The market is strong. The demand is strong, unfortunately, especially if you think about smaller customers, and I'm afraid, that's the whole answer we have. Sorry for that, we are not forecasting. So we don't have a guidance for 2 or 3 years. Also because a lot of things is changing. We are adding new products. The market is dynamic, still it's very hard to make a very decent forecast, we will be able to be sure of.

We also have another question, why do we report revenues on a cash basis and do not have large deferred revenue? And this is actually the way we have been booking the revenues since the beginning, and this approach is also -- has been also reviewed by our auditor. And this is simply the way we do it.

And of course, these results will [ beat that ]. Even auditor refer to that method and in the last statement and...

Also maybe one note, this -- especially from the very beginning, when we didn't have that many -- when we changed the SaaS, and we didn't have that many annual contracts, this proportion of annual payments was very limited. So -- and now this is between 5% to 10%. Still, it doesn't have that much of an effect on the revenues in a quarter, although we already seen last year in Q3, that's a huge payment from one of our top clients made a huge difference on the revenues. So if that becomes more preferred way of signing contracts -- the annual contracts, we might revise this approach in the future. But for now, this is the way we book the revenues.

Yes. Of course, I think this also matters that actually, this revenue are actually going through life [indiscernible] we recognize these revenues as revenues of our subsidiary. That's the one thing. But definitely we are actually -- that's why we decided to show you also ARPU to disclose -- not ARPU, of course...

MRR.

MRR and actually I was -- believe me, I was extremely happy. This, I think we noted was 3 quarters ago, when we have this huge annual payments. So I was extremely happy that we decided to show MRR, to disclose MRR because -- I think because of that, we -- absolutely, we didn't misguide anyone, and actually, I'm very happy that we're doing that and we will keep doing that, and actually that is the situation for now. It's Daniel. Daniel [ Blazer ]. You mentioned what's the largest [indiscernible] on the year were in your annual report. Can you say something about what the larger deals in the last quarter, actually [indiscernible]. Actually no, we didn't, and the reason is very simple. So actually, we didn't have time yet for our update with the sales team. So actually, we have this update from time to time, regularly, and we didn't have this update with the sales team...

But we will disclose them in quarterly report definitely. Thank you.

So thank you, Daniel. Thank you.

If there are no questions, of course, we are for you either on our website through chat or like on e-mail communications. So there is always a chance to ask questions if you have one. But thank you very much for the questions you ask and thank you for listening to us. And we very much hope that you found this informative.

So thank you. Thank you a lot. Have a great day. Have a great evening. Thank you. Thank you very much.

Thank you.