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

Hello. Good morning, we will start over some in a minute or 2. No, its a minute passed 3. So I think we can start. So I would start recording and start welcome here.

Right. Good afternoon, everyone. It's past 3:00 p.m. in [indiscernible] And today, we will be having a call on the annual results for the 2022, '23 financial year. And also we'll cover in that call the KPIs of the first quarter of the new financial year, and that is the period of April to June this year. And it will be the IR team presenting today. My name is Lucja Kaseja, and Marcin Droba is with me on the call.

Hello, everyone. Good morning. So just for start. As some of you probably know, we planned to change company's name after coming AGM. It's a change which supposed to stress the fact that we are no longer a company of the one product. We now changing our strategy. We speed up with AI and also at the end of the 2022, we bought a very strong domain text.com. So actually fill invited to visit text.com, check our vision. Actually, we try to present on this website how we look, how we feel about our company, our place in the ecosystem and how we feel about industry, what is coming, what we're changing and we think that you can look at our industry and see some I think of how our industry looks like, what we are doing. The first is the situation where we had a tool which enable agents to communicate online with visitors on the website and be supported opportunity to check the wisdom [indiscernible] the knowledge [indiscernible] in this company at the second stage. And that's what we are doing now with the AI tools, is the situation where agent is actively supported by these tools, which suggesting answers which brings this knowledge to him. And the third would be, of course, and coming, we welcome the stage, free with ChatBot 2.0 is the situation where the whole communication is taken from agents and is handled by intelligent stores and human is still present in that process, but as a trainer or supervisor. So feel welcome to text.com and check actually our vision for the industry.

One thing that I have not said is that we are going to run a 15-, 20-minute presentation when we will summarize the year and the first quarter. And later on, of course, as usual, you will have the chance to ask questions, either you can write them already in the chat section or you can later on raise the hand. And now into the presentation. As always, we are giving a very brief intro to our business. That is to welcome the potential investors that might join the call for the first time. So we are a global Software as a Service company. We mainly focus on the U.S., where we generate 40% of our revenues, 2/3 of the revenues we get from the English-speaking countries. And in Poland, where we are headquartered, is now responsible for less than 2% of the revenues. We operate in B2B subscription model. So the companies that buy our software, they pay for a subscription. Important thing here is that they pay in U.S. dollar. We have a very unique customer acquisition model that is mainly from inbound marketing, and it actually allows us high and sustainable margins. As an effect also is the fact that we are a dividend-paying company. We pay -- we have a very long track record of that, and we pay as much as possible from the net profit in form of dividends. We still have the cofounders on the team. So we have them on the Management Board, but also in the Supervisory Board. And more into our business, we have now 5 products that is LiveChat, ChatBot, HelpDesk, KnowledgeBase and last one, OpenWidget, which is actually our first free products that we have. What they all have in common? And is the fact that -- it is a premium service. We're very much focused on customer experience. We give a lot of customer support. We have a very open ecosystem, and we actually encourage others to join us. And we have, for example, more than 200 integrations now of our product with other products. And that will be a very brief summary of the company. And now I will go into events. And the first one that I want to describe is actually the number of interactions that our customers had well within the products that we offer in the past financial year. So what is -- we are very happy that this number increased by more than 70%. And together, LiveChat and ChatBot they had more than 1.7 billion interactions, so that means chats. And this growth that we see in terms of the number of interactions is actually much higher than the increase of the customers that we have. And this is exactly the result that we want to see to see that the customers are very actively using and increasing the -- and the software that we give increases the value and gives opportunities for the businesses to increase their sales or to help better their customers. Also, in case of HelpDesk that meant that 5.5 million tickets were sold during -- through our software. And commenting the past financial year. A couple of days ago, we published annual results, and those are the revenues that we managed to get where PLN 315.7 million, and that is actually an increase of 41.9% over the year. And similarly, net profit increased as well by 44.8% to almost -- to over PLN 172 million. And that is also due to the fact that Q4 for us in terms of the revenues in PLN were very strong. It was an increase of 43% to almost PLN 90 million, and the net profit hit -- was very close to hit PLN 50 million. And that could not have happened without the customers. So we also give the numbers for the use of products and the number of customers that we have. And those actually include the numbers for the quarter which has just ended. So for April to June, the increase in the number of customers for LiveChat was 704 new customers in that particular quarter. And that means that we have over -- sorry, 37,765 customers of LiveChat and ChatBot has rised to 2,804 customers. So that means an increase of almost 100 customers in the quarter. Together with that, with quite good numbers in terms of the acquisition of clients, we have LiveChat ARPU and ChatBot ARPU increased over the whole year, year-on-year by 30% and in case of LiveChat and 99.5% in case of ChatBot that results from the price increases that took place during this financial year. And monthly recurring revenue, which for us is one of the key performance indicators. At the end of June, it was at the level of [ $6.147 million ], and that has increased 34% year-on-year. And last but not least, in this section, the product, we have been very busy with the development of AI-based features, the communications that we have of those features is mainly for the customers because we -- it's -- we want to builds to create the value in the product for them. If you actually want to follow those changes closely, you can see -- you can link to the website where we not only inform about the functions that are already in the product, but also in the future. For example, just this week, we added for the business and enterprise plans, a feature of automatic chat summaries for agents if those are -- if chats are transferred between agents. It saves a little work for our agents. In another products, in ChatBot, we are at the very beginning of beta test of new version of ChatBot. ChatBot 2.0, which will change the way that the ChatBot looks like. And also, the last maybe not the most important fact, but also it shows how we want to see the product and everything that is around the products of the whole ecosystem. We are -- we have started text accelerated, where we chose 6 teams out of 600 that applied and they will be working very closely with our people on the team during 8 weeks program to monetize the ideas or to work in the expertise of text intelligence that we have in the company. A small note here, more of fun fact. One of the teams got involved in this text-accelerated program because they have read in our Investor Relations reports on the company about the program. So we are having our fingers crossed for that person. We are quite happy that we could have added to that. Also, we already had the decision of the Management Board on the dividend proposal of how to split the net revenue -- net profit and out of PLN 172 million of net profit, PLN 153 million will be paid out in the form of a dividend. Already, the second advance towards dividend was approved by the supervisory board. And that means that PLN 1.46 will be paid per share and that will be paid out on 4th of August. The total dividend value is close to PLN 6 that's 5.95, lots of pressure. Last but not least, from my section. Transition into text. So we will be proposing at the upcoming Annual General Meeting to change the name of LiveChat software, [indiscernible]. We will not be changing the name -- the names of the individual products and also the individual website domain will remain with the 5 products that we have, especially due to the fact that the domains that we already have are very strong domains. And we will be -- actually, we are already displaying the whole product portfolio on the new website texr.com, which we mean that -- it is worth reading.

And now we can dive just a little into latest numbers. First let's start with annual results, as you can see. The net sales grew by almost 42% and EBIT and net profit by almost 45% on an annual basis. Of course these results are presented in Zlotys and are also supported by strong U.S. dollars. If we look at Q4 alone, the results are even better. Net sales grew by more than 33% and EBIT and net profit grew by 65% and 64%, respectively. And of course, that was -- that quarter, which was fully based on new pricing of the LiveChat. So that's the full effect of the change or has seen here. And of course, this results in our case, translates into very very healthy cash flow. And you can see that actual -- that most important negative position here is cash flow from financial activities, which means dividend in our case. But the situation is very healthy. And even in this tough and uncertain times, we can uphold our dividend policy. And actually, we are doing that. So yes, that dividend policy is confirmed. And if you look at the revenue split, geography split is not changing a lot. So of course, the U.S. is the most important but what we are expecting actually is that new products, younger products will be catching up LiveChat that the last quarter was, of course, very strong for LiveChat because the change of the pricing had a stronger -- very strong impact here. But nevertheless, you can see that the specially [indiscernible] case is achieving very healthy, very healthy growth. We are very happy from these results. We expect, of course, a start in the coming quarters, that the new product will be catching up definitely. That's the speed for the last quarter, HelpDesk is still below 2%, hopefully not for very long, ChatBot still above 5% and that's not going to change. Contrary to that ChatBot will be growing faster than the LiveChat, that's what we expect. That were annual KPIs and KPIs for the fourth quarter, and now we can jump into the first quarter up from April to June and actually preliminary results. Here, our revenues which will be no longer revenues because we're going to change our policy of the revenue recognition, that's going to change. That's no longer is -- and that's no longer data about estimated revenues. We will -- what was the difference actually, we used to recognize revenue at the moment when we, on the cash flow basis actually, when we get this money. And after the latest discussion with auditors, we now think it's just -- this position is now big enough to justify, to change that policy, and we will be smashed this revenue between the quarters, in the terms of the annual payments between 4 quarters. And I think that's what is expected by best of that would be a positive thing because that will give a much better overview on our business in the future. But we had to take some data from the investors. We want to be very transparent. So actually, for the Q1 it is $20.16 million are actually operational cash flow, which we [indiscernible] numbers, which would be translated into revenues under old policy. So that would be a small growth between quarters, which is the effect of the I would say, modest number of the annual payments in the last quarter. And yes, that's the number. We still think that the best KPIs for the investors to look to think about our business is still MRR and you can see it at 2 quarters before. We jump on the higher level after changes in our pricing. We are not losing to the business. We are still growing and the MRR accounted to $6.47 million in the last quarter. This MRR is, of course, result of the 2 factors. One is the number of the customers. And the second one is the ARPU. And it was very good quarter if you think about customer acquisition, that number of LiveChat customers grew by 700 net versus 1,500 during the whole last year. Actually, it's a pretty good number. But new customers number, here, you can look at our ARPU, at longer perspective. Let's jump to another slide when you can look closer after latest data, and what we can see here is actually, especially in the April and May, that new customer base was dominated by very small customers. So yes, we can see a lot of activity on the market, but especially when we think about very small customers and bigger customers looks reluctant [indiscernible] planning more, [indiscernible] touch about economics. They are rather changing -- waiting with some decision about investments. And when doing that, that really want to be flexible when it comes to payments. So they really don't want to pay annually, not at this moment. They rather prefer, they want to be charged month by month, even if that's more money actually but really want to be flexible at this moment -- At the ChatBot, with the same KPIs, the story of the ChatBot is, as you can see, when you think about number of the customers, not very fast growth at the moment, but nevertheless, very constant growth. ChatBot is adding customers each month. And definitely, the most important thing now is new version of this product as we speak. A new version of the ChatBot is being released and will be available for the first customers, which will join our beta testing program probably next week. So that's the most important. I mean we are where -- there's definitely more room for the draft when we think about ChatBot, ChatBot is growing, chat box is adding customers each month. The ARPU is growing. So it's quite a good picture, but definitely, there is a huge change for this product, which is coming. So we are very excited about this possibility and what is coming. And saying that, we -- that's all what we had in stall for you, and we'll be happy to answer questions as we have some of them.

We have several questions in the chat section. I answered some of the technical ones. Please have a look at the answered one as well. We can start with the first one from anonymous attendee that relates to the revenue recognition and we may just want more probably describe what has happened. So there was a comment in the press release that you are not giving revenue estimates because you are reassessing revenue recognition following comments from your auditor. Could you please elaborate on this? And in fact, when we published KPIs, we do not want longer to provide estimated revenues for the period. However, this quarter, in order to provide a comparison, we also have given these numbers. Actually, these are more of an operating cash flow because that was the basis for our estimated revenues. And it has been given in the report. However, in the future, what we will change is the fact that so far, we are recognizing all the revenues and we were booking them in the period when we receive them. So no matter whether it was a monthly or annual payment, we were recognizing the whole amount in the period when we received it. Now we want to distribute these revenues over the periods when we serve the service actually. So if a payment is done this quarter or annual contract, for annual subscription, we will be booking 1/4 of it this quarter, 1/4 of it next quarter and in the 4 quarters, the revenues from this particular subscription will be seen. And this is what will change in the future. We are now revising the methods of calculating it for the current period. And once we will be publishing it, we will, of course, establish the numbers for the past financial year for the comparison.

Okay. So that's one -- I think we have Daniel here. So maybe we can let Daniel ask his question.

Good to see you. I actually posted one question, I think, in the chat here. But I have another one, the ChatBot ARPU was increasing pretty strong in say. Is it still price increases that are flowing through there? Or are customers adding seats and features there? Due to the change.

Yes, yes. So yes, I would say the most important thing when you start we -- yes, we changed prices of ChatBot. Yes, we have now new prices. But in the case of LiveChat, actually, we changed pricing for existing customer base after some 2 months. And in the case of ChatBot, we didn't do that. So yes, the new customers which are buying ChatBot are paying new -- that have new pricing -- that the existing customer base is allowed to keep the old pricing. So yes, that is making difference. So that's why ChatBot actually is still growing and has potential to grow. Also very interesting thing we have -- when you look at the pricing of ChatBot, there is some number of interaction which is included in each pricing plan. And if you -- if customers have more conversation, he's charged additionally $0.01 per interaction. And so actually, we have some -- each month, we have some additional revenues. But we are not thinking about them as recurring revenues. So actually it's not included here in ARPU because ARPU is based on revenues. So actually we -- the real ARPU -- the real ARPU of ChatBot is higher. It depends from the month, how much higher but it can be $20 or more per month. So yes, so the real ARPU of the ChatBot is even higher.

Understand. And just to be clear there. So some of the ARPU increase is driven by new customers being applied on the new pricing tires. But what are you seeing in terms of added or reduced number of seats there? Are you seeing the same as you're seeing with LiveChat, with some removal of the number of seats or...

Yes. I think that was the case in the April. Actually, April wasn't great because we saw that some of the customers were reducing number of the agents. And that's why actually why is there absolutely main reason because of the -- we saw full contraction in the LiveChat ARPU in the April. In May, it was stable. In June, we returned to growth. But yes, that was what certainly happened in the April.

Right. So in May, June, you saw changed to added seats rather than reduced seats in both LiveChat and ChatBot.

In ChatBot actually is, well, it's not about seats really because no, you can't have seats in the ChatBot, but it's just ChatBot. But what is important is ChatBot, the new customers will think more than old customers. That's the important fact and actually more customers are choosing higher plans, usually.

Got it. Okay. Just a final one on I wrote it in the chat, but I guess I can take it here right away. So it was a bit surprising to see a fast return to strong customer net adds again considering the current environment and just curious what was driving that if there's anything in particular that you would highlight that's driving that change? Because, yes, that's not what you're seeing from many other similar companies, I guess.

So indeed, this is something that is more for the small customers. So we are actually seeing a lot of small companies, and hence, that is not really separated for ARPU, but it looks like they are the ones that have to do the business, no matter what -- no matter the conditions, and they are -- this part of the after market is still active, so small and medium size, whereas within the bigger customers, more enterprise customers, we definitely see what's the others are seeing. So, first of all, less or more reluctant approach to adopting new software. And also, for example, we see that the bigger companies, they are reluctant also to pay upfront, for example, for annual payments, and they require more as like more elastic approach to be able to start the deals.

Which can be some additional color can be geographic. And it looks like U.S. and Asia, it's the way. So Europe is weak, for us Poland is very weak but U.S., of course, we are trying to be focused on the U.S. market, U.S. and Asia leads the way, I would say.

Okay. Perfect. I understand. Maybe just to follow on, which I always tend to ask you. The number of employees at the half year-end. I don't know if you disclosed that in the release, but usually don't mind telling it. But was it a bit less than in March? Or if you can comment on it.

We ended the financial year with 182 people on board. And now it is slightly less.

Okay. Got it. Okay. Perfect.

It's great to have you here. Thank you. And we have William Sewell here also. Hello.

Hello. Can you hear me? I've got 2 questions on headcount. So the first one. So I understand that the last financial year was a year, where you added headcount, you grew the company. But Q4, the headcount reduced. So I just wanted some detail on why when you were hiring in previous quarters, you decided to shrink headcount in Q4 and maybe which teams were affected?

Yes. So indeed, we for the majority of the year, we are hiring. However, it was -- we had in mind that around -- the team of a size of around 300 people will be the complete team in terms of the size of the teams and the particular positions that we had to fill. And since then, first of all, we started to be very much concentrated on AI and automation and that, as you could have read in the letter of the CEO, this is in first -- firstly applies to ourselves, and we want to automate the work that we do on a daily basis. And it's not the reduction of the team is not actually through lay offs, but it is more of when people are leaving, we do not fill the positions. That's one thing. We try to cover for those people in some other ways. Also an important thing is the fact that we are pretty concentrated on optimizing and automating that we do. And for example, we no longer have Chief Operating Officer and Piotr Bednarek, who is the COO, now has the position of Chief Automation Officer. And this -- although it looks like just change of the name of the position, it really is what we do within the company. We want to operate smoothly and to have a lighter version of ourselves. In terms of the particular teams, since in the last 2 quarters, indeed, some changes were made. For example, we no longer have the social media team. We had this approach of working on social media. However, it did not bring the results that we wanted in terms of -- like we really want to -- for all of what we do to have either to be work more in terms of the product for our customers or to have the client acquisition. And it was not working well. So that's why we asked those people to either join some other teams like in the content team are to fulfill their careers in social media, but at some other place. Some other teams that were affected, we no longer have manual testing QA. So we went for automatic one. So that also meant some changes and on team level -- like on the team's level, that I think it's what mostly happened. Also, in terms of the -- to give you more context in terms of how we are organized within the company, we are now -- we have now a much smaller teams in like 5, 7 people in terms of the size of the team to have the job done faster and more smoothly. So this really like this automation thing really is down in the company, not only to make the automation for the customers, but also to have it within our own team.

Yes. So actually AI automation, it's affect us as organization. It's change things, that's the change, which affects us as an organization. HR is the team, which is affected, that also will be smaller. And what is important to say, of course, we are still hiring. We have some open position. And you can check at text.com that there is, of course, the section called job. And yes, we are looking for some people for mostly technical, like data engineer, data scientists. We have this team, we have know-how, but we really want to strengthen the team. So yes, in some areas, we are hiring, but it's definitely all about automation. Yes, we should be able to have a very smaller team.

That's really helpful. I think the follow-up question was you mentioned that you thought 300 people was a complete team in the past. Now considering these automation targets, do you have a new number in mind? Or and as well, maybe could you add some detail on with ChatBot 2.0, like how many new staff would you need to hire in the next few quarters, say to fully develop that product?

Well, not a lot actually. I think especially when you think about ChatBot 2.0, we have team, we have that team. I don't think we need to hire more people. I think -- it's great to think about AI. There is also a lot of tools, a lot of technologies, different, not only open AI, a lot of other which can be used, which can be somehow used during our work. We -- but it's not only ChatBot, of course. We have this data team. We have different ideas. We are working on some features for other products. So yes, we need some more people. I think we have a like 7, maybe 8 open positions as we speak. So something like that. I would say 7, 8, so not a lot of people. And we don't have a very strong target for the whole team -- but I think that we definitely, we had smaller team next year when we will meet maybe by 20, 30 people, something like that. Not a very specific number. Don't think about that as a number written in the stone. But it's just how it looks now.

Yes. That's very helpful. Thank you. Have a good day.

Have a great day. Thank you.

So we're now coming back to the questions from the chat, and there is one from Jose Ignacio Caro. Is there any plan to list the company in the U.S. Stock Exchange in the future? And I would say just as we have recurring revenues, this is also a recurring question. This is we are, first of all, in our business very much looking at the U.S. This is our target market. This is the -- actually, the U.S. customers are the customers that we think of when we do changes in the products. And U.S. has been always the market that we were looking at. Also in terms of the stock exchange, at the time when we were deciding whether to list in Warsaw or somewhere else, U.S. was considered as well. However, this should be treated as a long-term plan for the company. A vision of the CEO or the company should be at some point. However, in the next few quarters, nothing will change.

Yes. So that was always ambition. So I mean, 10 years ago, that was an ambition for us, and it still is. So as you can see, it can take a time. It still can take a time. So of course, that would be great. Even if you think about the currencies and how we are affected by that. That's not something we like. It would be great to report in dollars -- to pay dividends in dollars. Our business is in the U.S. We are very focused on the U.S. market. So yes, so definitely that on something we'd like to do and like a lot of things like that. There is always something which is [indiscernible] a whole attention from our team, from our management, CEO and now in start of your seat is this AI and this opportunity and huge challenge, of course, that reescalated to that. So don't expect anything of us but it's always was ambition. Even, I would say, personal ambition of the LiveChat founders.

Okay. Next question. Again from anonymous attendee. Actually, sort of 3 questions. If you had a silver bullet and could take 1 competitor out of business, which one would it be?

I will take this. I will start with that. So, no, no, we have nothing but respect and really love for our competitors. They are actually the great companies and they motivate us and a lot of them actually coming to that market with the own customers, I think that's the great situation. We had this story in Poland that when Facebook actually knows that it will publish how it's called Messenger -- actually made it possible to use messenger on your website. Yes, messenger plug-in, which actually was perceived as a direct threat to LiveChat. And actually -- and I can understand that. I fully understand, that Polish investor -- that Polish shareholders that are afraid that our shares lost 20% of the value in 1 day, it was just beginning. And actually, we're happy about that because we didn't think about Facebook as a competitor, but we were convinced that they come in to the market. We will take on customers. They will bring a lot of new customers into our market and maybe some of them later will look for more advanced tools. So we were very happy about that shareholders not but actually, we were right, then. I remember one story actually, that is a very long story. That company does not exist. Actually, it was bought. It was a company called Zopim as I said, they don't exist as a company and [indiscernible] So maybe I can. Because say, what they were doing, it was like 12 or more years ago, they were doing, [indiscernible] marketing [indiscernible] targeting us and our customers. So that was unfair, and we really weren't happy about that. And but we never responded in the public. So that was the one maybe one only case when we really had some negative feelings towards some of competitor. That was just a part of the question. The next one, what is the key competitive advantage for LiveChat and the third one in the 10 years from now, where should LiveChat be under ideal circumstances. We had this traffic in our office. We have -- it would be great to show that, but end of the office that virtual background. We have the time line of the LiveChat -- our history on the wall, printed on the wall. And we have this story and some people actually marked when they come to our company and tell us a line into the future. And I believe is like 2060 at the point -- at the end of this line, and that is HQ on Mars. Yes. So fingers crossed for Mr. [indiscernible] that's the official plan, you can come to our HQ and check. It's -- I would say, it's almost official but seriously, of course, that's the serious discussion about competitive advantage. And -- and of course, that's a huge discussion about it. That's a huge team because we compete with very different companies. We compete with providers of the resolutions. So yes, we have to compete with the companies that are giving some tools for free. At the same time, we are compete somehow, maybe not so directly with companies like LivePerson providers of the great tools which are designed for the enterprises. And our niche, our sweet point, I would say, is somewhat in between. And long story short, we are -- I think we are very good in giving a lot of value to the small or medium companies. We are able to pay for premium solution, but are not big enough to use and pay and be charged for some enterprise level solution and maybe to take solution and just not good for them because they have our take on limitation. So we have this sweet point. We have this niche. We are really very good at the standing [indiscernible] companies. We are very close to them. We are flexible. We are the first user of our tool. We are really very good at understanding, but where is the really value for the customers. We are -- also I think we are very flex when it comes to change some things in our tools. What I mean is from the opinion about one of our competitors. They have a very good tool, which really outdated look at UI and we are really changing things very often, as I said, we are using them. So yes, I think that that's some of our advantages. We are very -- I think we are better efficient when it comes to customer acquisition. I think that's not something I have to prove, you can look at the numbers. But at the end of the day, it's about value for the customers. Lucja, do you want to add something? Of course, if you want to ask to be more specific, we can continue this discussion maybe we can contact and have one-to-one meeting and discussing -- thank you for this question. I mean, it's great. Yes, we don't want to kill our competitors really. There is space for [indiscernible] company here.

Should we go to the next one?

Yes, definitely.

So any idea when ChatBot 2.0 will be released? And do you expect this to cannibalize your LiveChat product? So ChatBot 2.0 will be released to -- the customized should be released within a week.

From the technical standpoint, it was released today, and we will invite customers to try it next week.

So it will be running and in terms of the cannibalization with the product with LiveChat, it has worked long well along LiveChat. So we see a lot of examples where both of the products are used. So ChatBot for filtering out or entering the most common questions. And then with more specific ones, people are transferred to a human agent and this through a LiveChat product. So it's one e although what we are already hoping to ChatBot 2.0 more like what should work well. It is the fact that it will be much easier to build -- to run those ChatBots than in the past. And this was one of the obstacles or challenges for us for ChatBot product that you had to spend more time on setting all the things. And now it will be done automatically. And you could -- you will be able to adjust or to tune, then you bought more towards your needs, but the majority of the work that has to be done initially will be done already in the product.