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

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to discussion on Text Q4 2024-'25 KPI Conference Call. The call today will be hosted by Marcin Droba, VP of Investor Relations. At the end, there will be an opportunity to ask questions. So without further ado, I will now pass the line to Martin. Please go ahead.

Good morning, everyone. I will try to go as quickly as possible over the data trends and events from the past quarter, and then we will move on to questions. Our absolute priority remains the development of the suite. Over the past quarter, we have undertaken many actions related to this process. Some have already impacted our results, while most will only do so in the future. Between January and February, we finalized the long announced sunsetting of the native ticketing system in LiveChat. It's worth noting that this system was quite basing and has not been developed or supported for a long time. As expected, this had a significant negative impact on the number of LiveChat customers, but at the same time, it boosted the upselling of HelpDesk. We also launched a joint trial of LiveChat and ChatBot and continue making changes to our cloud infrastructure. This is absolutely critical for us, but what may be relevant for you is that the past quarter should be the last one in which costs related to this area increased. Starting from the next quarter, we expect to significantly reduce them. As previously announced, we are changing the way our sales team operates, making it more active offline. This quarter, we attended events in New York, Miami and Barcelona. In the coming months, we expect to have a small team operating locally in the U.S. These efforts are already yielding results. We have secured our first customers with an annual contract value of $1 million. This was achieved through upselling to an existing client already using our product. The contract is for 2 years with quarterly payments. Responding to customer signals, we are introducing cryptocurrency payments in our enterprise plan, and we anticipate a significant transaction in this area in the coming weeks. This quarter also brought new partnerships, including in our partner program. However, I want to highlight our entry into HubSpot App Partner Program as the official and high-quality LiveChat integration with HubSpot has been highly important to many of our existing customers. We are still working on SOC2 certification where we may experience some delays. SOC2 largely describes how software is developed, and we are introducing changes related to the suite in that area. However, the certification itself is not at risk. Regarding KPIs, our most important metric, MRR grew by 6.9% over year-to-year. To compare a year ago, this growth rate was 4.1%. A quarter ago, many of you were concerned about the level of received payments. But as you can see, they have returned to a high level, increasing by 3.3% year-over-year and 4.8% compared to the previous 3 months. Now we will move to our traditional set of KPIs, supplemented with a few additional slides. I'm not sure if this will stay with us long term but I hope they help you better understand what's happening inside our business. Payment received increased by 3.3% over the year and 4.8% compared to the previous 3 months. I want to emphasize that the already mentioned large client pays us quarterly. So there is no extraordinary items in these figures. MRR continues to show a 6.9% year-over-year growth despite a just slight quarterly increase. ChatBot and HelpDesk are contributing more and more to MRR with ChatBot alone now approaching $0.5 million. This is the one of the mentioned new slide. And this chart shows the share of customers with RPL above and below $500 as a percentage of our total MRR. As you can see, the share of larger customers is steadily increasing. It has grown by 8 percentage point over the past 12 months. This isn't visible yet, but at some point, this should start to positively impact churn particularly revenue churn since larger customers tend to be more loyal and get more value from our products. These slides present a similar view but focus on the share of customers using more than 1 product within our total MRR. A similar trend can be observed here. The share of this group has grown by 9 percentage point over the past year. ARPL for customers using multiple products increases significantly. For example, having just 2 products already places ARPL at a multiple of the average for our entire customer base. This is of course, at the least pleasant slide in today's presentation. The number of LiveChat customers has dropped significantly. As I mentioned, this was -- there was a one-off event related to the sunsetting of the ticketing system in LiveChat. Customers churn remains high at over 4%. When looking at the reasons provided by customers, the most common one reason for churn was closing the business or changing the business model. The second most frequently cited reason was lack of chats. Lack of chats historically has been the #1 reason for the churn. Price and competition came as the reason much lower on the list. But keep in mind that this data only reflects customers who explicitly provided a reason for leaving. So it's not a complete picture. On this slide, you can see that the positive trend for LiveChat continues as this product added $3.3 to ARPL this quarter. This is the result of several factors, successful upselling, acquiring larger customers and higher churn among the smallest customers. As you can see, ChatBot is regaining traction in customer acquisition. We still expect more from this product. But as for now, the joint trial with LiveChat is proving helpful. ARPL for this product is stabilizing, partly due to promotional pricing for the initial period. Despite this, ChatBot added $3 to ARPL over the past month, which is a solid result. It was a slightly weaker quarter in terms of revenue from additional chats not included in reported ARPL, which on average added $30 to ARPL for this product during the quarter. As you can see, the HelpDesk delivered an absolutely phenomenal quarterly results, both in terms of customers growth and as you will see on the next slide, ARPL. Of course, this is largely due to sunsetting of tickets in LiveChat, which has been communicated to customers in advance. However, this should not be seen as typical one-off events. It is significant that this product, the build-in ticketing system within LiveChat and the separate HelpDesk product no longer compete with each other. Customers who have switched to HelpDesk are getting a real premium too. And as I mentioned, HelpDesk also performs very well in terms of ARPL with an increase of over 7% over month. In summary, our top priority remains progress in transforming into a suite company. Some of this quarter's efforts are visible to you while others are not, but all of them are important. Even without the effect of this transformation, our business remains secure, stable and growing organically. Our new products are performing very well, ChatBot with 26% MRR growth over the year and HelpDesk with an impressive 126%. The current growth rate for the whole company does not match our ambitions. But we have achieved these results in a challenging market environment for businesses, marked by significant changes and uncertainty affecting business sentiment. Morgan Stanley recently released an interesting report on SaaS companies highlighting TASE challenges. And if you have that opportunity, I highly recommend it to you. Looking at ChartMogul benchmarks, our revenue retention has consistently been in the top quartile and even of the ChartMogul benchmark, so we are one of the best SaaS in the world at this moment when it comes to revenue retention. But even if you check the benchmark for customer retention, we are above the median. This reflects the very difficult market condition rather that -- and the weakness in our fundamentals. Thank you very much for your attention. I will be happy to answer your questions.

[Operator Instructions] We have received a bunch of text questions. So the first question comes from [ Piotr Raciborski from Hermes ]. Will there be any impact of new U.S. tariff on Text business?

So as I believe, these tariffs are on the product. So I don't think that there will be any impact as for now, we'll observe situation. We will learn now. So I hope that's right. I hope this, I would say, trade conflict, we will not expand to new areas. But if I'm right, according to my best belief, these tariffs are on product. So it shouldn't affect us. Of course, you -- definitely we will be observing situation.

Okay. Moving to the next question from Henry Reiner from Ennismore Fund Management. What are the key drivers of churn for the LiveChat product? And why has it worsened over the last latest quarter?

Henry, I'm very, very happy to have you here. So for the last quarter, definitely, we had this one-off situation -- one-off event, sunsetting ticketing systems. So, some of our customers decided to buy HelpDesk instead of the -- in place of sunsetted ticketing -- ticket system of the LiveChat, but a lot of them decided to quit because they decided that without that value, they don't want to pay more, and we lose them. So, that was something we expected definitely. So, I think in that quarter, we lost for that reason, some a few hundred customers additionally simply because of that decision. Of course, at the same time, we get a lot of new customers for the HelpDesk. So that's what happened in that quarter. Quarter-to-quarter, customer churn very similar, above 4%. And I mentioned the reasons in the -- during the presentation. So if you have some more detailed questions, if you want to jump in, of course, we are open to that discussion. So thank you for that question.

Okay. Moving to the next, we have a couple of questions from George, [indiscernible] with Digital. Can you explain how high switching costs are for your software suite and whether they are rising over time? And another question.

Maybe I'll talk about the first part. I've answered the first part -- first question. Switching costs are for your software suite? So, if you mentioned this cost of making changes in our cloud infrastructure. If you are mentioning that we are -- at this moment, we are forced to doubling the expenses of the cloud infrastructure we are using because we -- at this moment, we are using the infrastructure of 2 providers. And this quarter, we will be discussing quarter ended in March will be the quarter when the -- this cost will be at its peak. And then from the current quarter, from the quarter we just begin, we will be -- should be able to significantly reduce this cost as some migration are done or finished, and we can proceed. So, in the -- comparing quarter-to-quarter of our Q4 of the financial year, the cost related to cloud infrastructure can be grossed by some PLN 1 million plus, and from the current quarter, from the Q1, we should be able to reduce that position cost related to that position by some PLN 3 million. And you can go to the next question.

Question from [indiscernible]. Why are you introducing crypto payments? Are you aiming to hold a crypto reserve?

So thank you for that question. Actually, we are introducing this crypto payments because our customers, our prospective customers, were asking for that. So that's the only one reason. And we will not see actually the crypto on our side. So, actually, from our point of view, that will be dollar transactions. And so, for us, it will be U.S. dollars. So no crypto reserve.

Okay. Perfect. Moving on to the next question from Bartos [indiscernible]. Could you please share any updates regarding TeamChat development during the quarter?

So, thank you. TeamChat will be a very important part of our Suite. And I think all going well with that product, but sorry, no update on that. There's no -- not no --nothing new, really, on that matter. And there is another question since I can see that a very similar question, the same question about workflows. I would say, no, nothing new. We are very focused on the suite. We are pushing with the suite, both TeamChat and Workflows will be a very important part of the suite. And some update on how suite is going will come in the next quarter. But, I think we are quite happy with both project. TeamChat is being tested. Workflows is used by a group of our customers. So it's now daily work. Products are developed. So sorry for nothing really new, nothing -- no exciting news and the focus is on the suite, and we are really pushing the suite.

Okay. Perfect. We are now moving to the question from Maximilan. Thank you for adding the new metrics on the suite progress. And the question is, you mentioned the sunsetting of LiveChat ticketing and the transfer to HelpDesk. I didn't acoustically hear you. Did you say the increase in HelpDesk should or should not be viewed as a one-off?

Okay. Maybe go on with the question, sorry.

But presumably not 100% of LiveChat ticketing customers moved to HelpDesk. How many customers did you lose on a net basis?

Okay. So Yes, I would say, yes, it's one-off. I mean, don't expect the same results from HelpDesk next quarter. So in that perspective, there is one-off. At the same time, the effect of that change of sunsetting ticket is still not fully visible as some customers are still testing HelpDesk on trials. So we will see some effect will be visible also in the current quarters. And it's not one-off. If you think about the fact that HelpDesk is no longer competing with LiveChat and we will be able to show the value of the HelpDesk better to LiveChat, to new LiveChat customers so it should improve. So this is something which should also help HelpDesk in the future. So the answer is, yes, it's one-off. And it's not entirely one-off if you look at other perspective. I hope that's clear. Net results -- on the net results, yes, we definitely lost some more customers. I think on the -- if you look at the results of the -- of that quarter when we lost 100 -- 1,400 customers on the net level, there is like definitely a few in that number, there is like extra few hundred of LiveChat customers who decided to quit because of the fact that we sunsetted ticketing system. And we were ready for that. That didn't surprise us. We were prepared for that.