Kaleyra Inc (KLR) 2021 Q3 法說會逐字稿

Good afternoon. Welcome to Kaleyra's Third Quarter 2021 Earnings Conference Call. After the market closed, Kaleyra released unaudited results for the third quarter ended September 30, 2021. The press release as well as a replay of today's call can be found on the company's Investor Relations website at investors.kaleyra.com. Please view the release for additional information on what will be discussed today.

Joining us today are Kaleyra's Founder and Chief Executive Officer, Dario Calogero; and Chief Financial Officer, Giacomo Dall'Aglio. Following their remarks, we will open the call for your questions.

During today's call, management will be making forward-looking statements. Please refer to the company's SEC filings, including the company's annual report on Form 10-K, for a summary of the forward-looking statements and the risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Kaleyra cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise the statements to reflect new circumstances or unanticipated events that occur, except as required by law.

Throughout today's press release and on the call, we'll refer to adjusted gross profit margin, adjusted EBITDA and adjusted earnings per share. These metrics are not determined in accordance with generally accepted accounting principles and therefore are susceptible to varying calculations. A definition, calculation and reconciliation to the financial statements of these non-GAAP measures can be found in the tables included in our press release. We believe these non-GAAP measures of Kaleyra's financial results provide useful information regarding certain financial and business trends and the results of operations.

Now I would like to turn the call over to Kaleyra's CEO, Dario Calogero. Sir, please proceed.

Welcome, everyone, and thank you for joining us today. For those of you who are new to our story, I'll begin with a brief overview of our business. Kaleyra is a communication platform as a service or a CPaaS provider. From a high level, we provide our partners with an omnichannel suite of powerful communication APIs and visual tools to bridge the gap between businesses and their customers. Brands worldwide often face coverage gaps when trying to communicate with their customers, especially in industries that require security and must prioritize reliability such as financial institutions and health care. Our mission is to help build lasting relationships between brands and their customers across channels and to do so while providing service that our clients can trust.

Today, our success in bridging the gap between businesses and their customers has enabled us to move closer to our long-term vision of being the trusted global CPaaS provider. While we have made substantial progress towards accomplishing this mission over the past few years, our work over the last several quarters and the third quarter, in particular, has accelerated the road map. This quarter was the first look into our business post the completed integration of our most recent acquisitions, mGage and Bandyer.

Today, a new Kaleyra has emerged, one with the same vision but with increased capabilities and influence across our global footprint and channel offering. Combined with the consistent execution in our existing operations, we now have a more diversified approach to growth that will enable us to compete in more markets at a greater scale. Our Chief Financial Officer, Giacomo Dall'Aglio, will discuss our financial results shortly. But before I hand over the call, I'd like to recap a few recent highlights from our stellar third quarter.

In our third quarter, we delivered 13.5 billion billable messages and connected 1.5 billion voice calls, both representing new records for our business. This is an increase from our second quarter and one that better allows us to leverage the benefits of scale.

Our main goal for our third quarter was to complete the integration of mGage into our business. As of today, I'm pleased to report that we are now a single combined entity with consolidated management teams and cost structures. A key consideration in our combining with mGage was their existing messaging presence that immediately provides greater reach for our business. Much of the mGage footprint is in the United States, and they have direct connection to all Tier 1 carriers.

With this expansion into American market through mGage infrastructure, our third quarter was closer to around 1/3 of our revenues from each of the Americas, approximately 41%; Europe, approximately 27%; and Asia, approximately 26%, a favorable balance that makes Kaleyra one of the most prominent and geographically diverse CPaaS companies in the world.

An additional point worth noting is that messaging termination cost, meaning the cost to deliver a tax-based message to its desired endpoint, are usually lower in the United States. So increasing our presence domestically in the U.S. presents an opportunity to improve our margin profile as well.

With our margin profile in line, another main goal of ours, both in the third quarter and moving forward, is to develop our omnichannel service offering. Beyond providing the most robust suite of services to our partners, new channels such as video and voice had better margins than our traditional messaging channel due to additional costs associated with the messaging networks. This quarter, bolstered by investments, including the acquisition of Bandyer, Kaleyra video and Kaleyra voice made significant progresses, highlighted by the aforementioned record volumes in both channels.

We have already seen the impacts of this progress on our margin profile. And while we have work ahead of us before our platform is truly omnichannel at global scale, advances in Kaleyra video and voice are indicators of our commitment to an omnichannel platform. The combination of a steadily growing core messaging business, along with new evolving channels, underlines both the robust opportunity available in our legacy business as well as the opportunity to grow our omnichannel offering as well.

Our performance within existing operations, combined with inorganic additions in the period, culminated in a third quarter of exceptional record year-over-year revenue growth of around 120% and the year-over-year gross profit growth of 161%. While much of our growth came as a result of revenue recognition from acquisitions, we also saw an approximately 30% organic growth rate year-over-year. These results validate our original growth strategy is still viable within our traditional of business unit.

As we look to close out the year, we believe we have a clear strategy to drive sustainable long-term growth. The strategy relies on 3 main pillars. Pillar number one, we are focused on expanding our geographical footprint. As mentioned, Kaleyra revenues come from global customers, and we are working to both expand our footprint and maintain our diverse revenue split among geographies. This ambition is driven by our view of the CPaaS as a whole, which is very fragmented and underpenetrated in many parts of the world. We believe we are well positioned to expand our footprint to other geographies that would benefit from CPaaS support.

Pilar number two, we will continue to invest in our omnichannel suite of services. It's our goal to meet our partners on whichever channels they require to best connect with the customers. As video and voice communication proliferate globally, expanding into new communications streams remains an important area of investment for our team.

And pillar number three, we remain committed to secure trust and service. Our business strives in an industry that have the highest standard for security in their communications with their consumers, banks, financial institutions, health care, et cetera, only to be able to trust their interaction with consumers, handled with the utmost security and consistent. Kaleyra delivers on that in a way that no other industry player does. While other players trade for permanent volume, we know that our expertise in trusted CPaaS influences customer retention and that with the right partners, this is an area in which we can excel.

In support of our growth pillars, strategic investment activity is an important part of our path forward as well. The CPaaS market is worth $8.7 billion this year and will be more further $34 billion in 2026, with a compound annual growth rate of 31.48%. But the overall addressable market for Kaleyra is much bigger when you consider also adjacent markets such as application-to-person messaging, WebRTC for video and audio communications, voice, RCS and OTT messaging.

Our estimate is that in this market, there currently aren't any players that own 10% or more of the market share. Instead, there are hundreds of smaller players competing at a local level in each region. In such a highly fragmented industry, wide spaces provide opportunity, both for organic expansion and for consolidation. As this pertains to our M&A strategy, we are aware that our industry is consolidating at such a pace that if they put will raise near marginalization. While we would like to participate with our industry, we are sure that we can remain patient and committed to finding only the right partners, those that fit our growth strategy.

Finally, we have a few nonoperational updates to share before I pass it over to Giacomo in just a moment. First, in August, we successfully uplisted from the North Stock Exchange American to the New York Stock Exchange. The updating to NYSE, a premier worldwide market, is a significant milestone. Being able to meet these more selective criteria is a testament of our ability to continually improve ourselves financially, operationally, in corporate governance and all the key areas of our business. We appreciate this elevated equity listing and believe our enhanced investment profile will open more opportunities and generate more interest from the broader investment community.

Also in September, Kaleyra was recognized by Juniper Research as an established in the global CPaaS market. Juniper Research is one of the leading independent analyst firm in the mobile and digital tech sector. So we see this recognition from such a respected source validates the work we are doing to build a more comprehensive platform of services.

In October, we were also recognized this time by Gartner's Market Guide for communication platform as a service as one of the 20 representative vendors of the CPaaS market. In aggregate, the growing number of industry accolades we are receiving underscore a growing awareness of Kaleyra as a major player within the CPaaS market.

In summary, this quarter was one of tremendous growth and the reaffirmation of our deliberate growth strategy.

I'll now turn the call over to our Chief Financial Officer, Giacomo Dall'Aglio, to discuss our financial results for the quarter in greater detail. Giacomo.

Thank you, Dario. Turning now to our financial results for the third quarter ending September 30, 2021. Our total revenue in the third quarter increased 120% to $84 million from $38.3 million in the comparable year ago period and increased 56% from $54 million in the previous quarter. The growth during the quarter was driven by the completed integration of the mGage and Bandyer businesses as well as strong 30% organic revenue growth across channels and a well-balanced portfolio across geographies.

Gross profit increased 161% to $19.6 million from $7.5 million in the comparable year ago period and increased 87% from $10.5 million in the previous quarter. The increase was driven by the increase in revenues for the quarter that outpaced cost increases.

Gross margin from the third quarter of 2021 increased to 23% compared to 20% for the third quarter of 2020. The increase in gross margin was mainly due to the mGage-Bandyer integration and increased performance by Kaleyra video and Kaleyra voice as well as by the Campaign Registry, our software-as-a-service offering that has developed over the past quarter.

Net loss totaled $11.9 million or $0.29 per share based on 41.6 million weighted average shares outstanding compared to the net loss of $5.3 million or $0.19 on 28.3 million weighted average share outstanding in the comparable year-ago period. This represents a 164% increase from $4.5 million in the previous quarter. The increase in the net loss was mainly due to the amortization of acquired intangibles and accrued interest expenses on the convertible notes.

Adjusted gross profit, a non-GAAP measure of operating performance, increased 174% to $21 million from $7.7 million in the comparable year ago period and increased 88% from $11.1 million in the previous quarter. Adjusted gross margin for the third quarter of the 2021 was 25% compared to 20% in the comparable year ago period.

Adjusted EBITDA, a non-GAAP measure of operating performance, increased 273% to $8 million, 9.5% of total revenue compared to $2.2 million, 5.6% of total revenue in the comparable year ago period and increased 271% from $2.2 million in the previous. The increase in adjusted EBITDA was primarily due to the fact of the mGage and Bandyer and cost synergy between the 2 legacy businesses.

Adjusted net income, a non-GAAP measure of operating performance, increased 306% to $3.6 million or $0.09 per basic share and $0.07 per diluted share based on 41.6 million and 52.4 million weighted average share outstanding, respectably. This is an increase from $891,000 or $0.03 per basic share or $0.02 per diluted share based on 28.3 million and 45.1 million weighted average shares outstanding, respectively, in the comparable year ago period. This represents a 618% increase from $504,000 in the previous quarter.

At the end of the third quarter, cash equivalents, restricted cash and short-term investments were $108.5 million compared to $37.8 million at December 31, 2020. Also considered the Bandyer acquisition happened in July and the warrant repurchase of August 2021. Of note, during the quarter, we entered in a warrant repurchase agreement with a group of institutional investors for an aggregate amount of 1,684,470 shares of our common stock. The stock was priced at $3.25 per underlying share on an aggregate purchase price of $5,474,525. We believe that taking these steps to simplify our capital structure will support the business long-term financial health and operational success.

Before I turn the call back over to Dario, I'll now take a few minutes to provide our financial outlook for the remainder of the year. As a reminder, at this time, Kaleyra provided quarterly and annual revenue guidance, as we believe these metrics to be the key indicator for the overall performance of our business.

Moving to our guidance. As a reminder, for 2021, our fiscal year end on December 21, 2021. As of today, in this call, we now expect revenue for the fourth quarter to range between $87 million and $89 million and for revenue for the full year to range between $264.7 million and $266.7 million, representing an increase to our previous outlook. Overall, we remain highly confident in the financial health of our business as well as our ability to substantially grow for the foreseeable future.

This completes my financial summary. I'd now like to turn the call back over to Dario to additional insight into our operational progress during the quarter. Dario.

Thanks, Giacomo. Looking back, we believe this quarter will serve as a bellwether for the future direction of our business. Our geographical footprint has materially expanded into a healthy global balance that we will look to maintain moving forward. Our inroads into the new growth areas, including Kaleyra video and voice, along with promising results from the Campaign Registry, have begun to drive leverage into our operating model. Combined with the record and growing volumes, we are driving across our global customer base. We see a clear path to scale and increase profitability over the long term.

So far, we have remained consistent in our ability to deliver on our promises and to execute against our growth strategy. Moving forward, we will look to build on our consistent track record and positive momentum as we advance along our journey to become the trusted partner in the rapidly expanding and evolving CPaaS market.

And with that, we are ready to open the call for your questions. Operator, please provide the appropriate instructions.

(Operator Instructions) And our first question will come from George Sutton with Craig Hallum.

This is James on for George. Great results. So through our checks, we learned that RingCentral is automatically enrolling brands using their SMS platform into Campaign Registry. Could you sort of talk about how you've seen other CSPs approach enrollment and the traction you've seen so far? And then if you are able to, could you maybe quantify the Campaign Registry contribution this quarter?

Yes. This is Giacomo. The Campaign Registry is overperforming, as we said, the first budgeting of the year. And we are in line with the message that we already said last August. We don't provide a split, but let me say, we are very happy with the performance of the Campaign Registry.

Indeed, we are still in the ramp-up phase, though. So the yet best to come -- the best is yet to come.

That's great to hear. And then relative to video, could you sort of talk about the level of interest from customers for video and maybe how cross-selling within your existing customer base has progressed thus far?

Sure. Well, video is kind of the flavor of the month because the pandemic brought very, in a preponderant way, video into the picture. And we see a lot of traction and a lot of interest. We are actively presenting to the largest account that we have, and we are discussing with them the possible use cases for these applications and transactions. As soon as we will have news, we'll press release, I think, if the customer will allow us to press release the achievements. But it's going well. So far, so good.

And our next question comes from Tim Horan with Oppenheimer.

Can you talk about how revenue progressed through the quarter? Particularly for mGage, did they exit the quarter at a much higher rate than what you entered the quarter? Because I know they had some pressures in the second quarter. Just talking a little bit about the pace of revenue changes.

In terms of this quarter, mGage performed with $34 million in the quarter in the 3 months. And in the first month that we consolidate in June for Q2, they performed $10.2 million. So we have a step-up of mGage, also monthly revenue, and we see -- starting to see also some synergy between the 2 platforms.

Yes, cross-selling opportunities.

And can you provide the same for the gross profit at the beginning of the quarter versus the end of the quarter? Just to get a sense of the synergies and the pace and the importance of mGage.

We -- usually, we don't split because having also synergy is difficult also to say what is Kaleyra, what is mGage because we have also the carrier that they negotiate for the -- all amount of Kaleyra volume considering also mGage. But of course, as we said before, we have an improvement for the margin, thanks to mGage, thanks for the video, thanks for the...

Campaign Registry.

Campaign Registry and voice. So all these elements and drivers bring a better margin for Kaleyra.

Yes. If I can add some color. The 2 drivers of the gross margin expansions are -- basically the most important ones are the larger presence of the U.S. market, which typically has -- enjoys larger gross margin, and the mGage contributed significantly on this and the change of mix in product where new channels with an aggregate gross margin profile came significantly into the picture this quarter with voice, video and the Campaign Registry.

Thanks for the volume metrics on 13.5 billion messages and 1.5 billion voice calls. Can you give us some sense of how that was growing either sequentially or year-over-year? Is it -- any kind of color on what those volumes kind of mean at this point?

Yes. Let me dig into the numbers and Giacomo...

So messaging volume increased 114% quarter-to-quarter -- quarter 3 on quarter 3 last year. And voice increased 36% in volume.

That's year-over-year. That's great. That's great. And then 2 more for me, sorry. The sequential guidance, I mean, usually in the fourth quarter, there's a lot of seasonality and there's really, really strong sequential revenue growth. I know you had great, great sequential revenue growth here this quarter, but your guidance is implying a slowdown in that sequential revenue growth and historically picks up quite a bit. Can you just talk a little bit about the reasons for that? Are you just being conservative? Or is there onetime items or something else to think about?

Yes. Let me address this question. So first of all, the seasonality is mainly on Kaleyra side and less on mGage side. So now we have to rebalance a little bit this item in the fourth quarter. And secondly, yes, we have now -- we want to stay a little bit prudent in terms also on COVID on December -- the month of December that is very important for Kaleyra. We don't know what will happen, especially in a market like Italy.

And do you -- are you still seeing much impact from COVID at this point? Obviously, no one knows what's going to happen in December, and I appreciate you being conservative, but are you seeing much impact in terms of revenues and usage at this point from COVID?

No. We don't see any impact. We keep on seeing a progress and the recovery in the economies, in the geographies where we operate. We might be a little bit more conservative because with the coming of the autumn and the winter, it might be that we get into a more complicated period in some geographies like in Europe, but you don't really know what's going on. It's pretty much depending on the rate of the vaccination. So Italy is good because rate of vaccination in Italy is the highest in Europe now. It's way over 80%. Now the U.S. is lagging a little bit behind now and India seems to be recovering very well. So it depends on this. Let me say, it's very hard to predict anything that's related to the COVID.

Yes, unfortunately. And just -- I know you've seen there's good synergies on the revenue and cross-selling. Can you talk about what segments that you're seeing that in or what products? Or any more color around the revenue synergies would be great.

Yes. Well, first thing we -- the starting point in the process is starting with the existing customers trying to expand their reach in new geographies that 2 parties and partners have brought into the merge between Kaleyra and mGage. Also some upselling in the omnichannel play, especially in the direction between former Kaleyra and current, let me say, mGage customer base where we definitely are actively pursuing opportunities on new channels. This is a very fast-moving space, also in terms of needs. And also the acceleration in the digital transformation that has been brought into the picture by the pandemic itself is creating kind of a burning platform for the acceleration of this change.

So let me say, video is definitely very much of interest in multiple geographies. Also the omnichannel play in general, voice and also the instant messaging over-the-top stuff. And this is also the focus of the sales business development teams because this is more interesting also in terms of financial performances, obviously.

(Operator Instructions) Our next question will come from the line of Lance Vitanza with Cowen.

This is Jonnathan in for Lance. Congrats on the quarter. Glad to see things are working well. My first question here is in terms of 4Q revenue guidance, can we expect mGage to contribute a similar amount somewhere between $34 million to $35 million or perhaps a little bit more? Like how should we think about mGage in the fourth quarter?

No. I said that in mGage, there is less seasonality, but doesn't mean that mGage does not grow. mGage is growing. So we expect to -- a better performance in Q4 than Q3 also because, as we said, we receive mGage a lower point in June, so we are trying to recover it.

Understood. And my last follow-up question. So I know you mentioned that there's a lot of spread in video. But if I may say that we can get for a second. As the rate of vaccination begins to increase and perhaps more people start returning to offices physically, do you see this perhaps being a headwind? Or perhaps are you speaking with your customers and you're seeing that video will be an integral part of business going forward?

This is a very good question, and I thank you for the question because this is allowing me to start really use video in typical unified communication situation for enterprises. Enterprises are using our video services in the interaction with their audiences, consumer audiences. So let me say, a bank is using video to perform the KYC processes with the customers or health care applications where it is being used for the video session between the medical doctor and the patient or in maintenance of machineries. So these kind of applications basically are not absolutely at all affected by the change in attitude of the enterprises in regard to the work from home or work from office policies. It's more related to the innovation in the services and in the service design that they nail down to change the way they interact with their consumers.

And our next question comes from Michael Latimore with Northland.

All right. Congratulations. That was a great quarter. So mGage improved nicely on a sequential basis. Is that based on sort of seasonality in the markets? Or do you feel like there was some improved execution there?

We believe -- it's thanks to Kaleyra and mGage management that started the synergy and also starting the new, let me say, strategy under the Kaleyra umbrella.

Yes, we have -- Mark, this is Dario -- Mike, this is Dario. Obviously, we have a completely new leadership, which is also including mGage management into the leadership. And this is a game changer in the way we deliver it to the market. And also, the company is -- has shown to be very solid, resilient and -- well, at the end, well performing. So we are pretty satisfied with mGage performances.

Yes, yes. And I think one of the cost benefits was being able to negotiate maybe better termination costs with more volume. And I guess how has that kind of plan been proceeding?

Okay. It is a process. There are several hundreds of counterparties in this process, and you do not renegotiate the conditions overnight. But definitely, wherever we have a double booking of the contracts with termination point, we sit down and we'll discuss with them better contract. And those are unified contract because they used to be 2 before the merge, but now we are one. And there's no reason why we should have 2 different contracts. So this is a process which is ongoing, still ongoing. And frankly speaking, this is a never-ending process, Mike, because the way termination fees negotiation and relationship happens, it's kind of a monthly discussion. It's more a partnership rather than a commercial thing.

Yes. Okay. Got it. And then just last one on India. I think on the last quarter, you mentioned India started to improve at the end of the second quarter. I guess how would you characterize the pace of business in kind of this quarter and even up to November here?

Yes. India performed well. Yes. And India recovery and start to increase as in the past as an outperformer in the group. So we are very happy with the India performance.

Yes. Another thing that is worth to mention that I forgot to say before is that all the new additional revenues that we are getting are recurring revenues. So the business model and let me say, the service model that we put in place on video, on voice, on messaging, it's always pay as you go. So increasing volume of our existing customers plus the addition of new customers and the addition of new geographies is always a recurring revenue strength, which is, let me say, making the management very confident about the outlook of the future because this is not like licensing software licenses. It's like entering in a service provisioning relationship that better easily evolved into a partnership with our largest customers. And it's always important when you think of Kaleyra, consider we cater 80% of the revenues with the top 40 customers with an average tenure, which is like older than(inaudible). So it's more a partnership relationship rather than a vendor customer relationship.

And our next question comes from Allen Klee with Maxim Group.

This is Derek on for Allen. My first question is kind of regarding COVID as well. You mentioned Brazil was kind of seeing some issues there. I was kind of wondering how you saw improvements there similar to India?

Brazil is recovering as well. And you can see also in the number that I gave about mGage, that is -- Brazil is an important part of mGage revenue. And so it's a little less than India in terms of growth. But yes, we are recovering also Brazil.

Okay. And then I have one more question. Just related to margins. We saw a good improvement this quarter with the integration of mGage and your U.S. exposure and also from the Campaign Registry and product mix. I was just wondering if you could provide any color on where you see these margins trending long term.

Yes. So the increase in margin is very important, significant this quarter. And also, video can give in the future a good contribution to the margin because we registered a margin in video higher than 80%. The Campaign Registry is still a high value contribution for margin. And also mGage is still a very significant, solid high margin compared to Kaleyra. So we think that in the future, we can have maintained this jump and also improve margin going forward.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Calogero for his closing remarks.

Thank you very much, Dave. So thank you all for joining us on today's call. As always, we would like to thank you our extensive worldwide network of partners and investors as well as our employees who are working hard for these results and for their continued support. Operator?

Thank you. I would like to remind everyone that a recording of today's call will be available for replay via link available in the Investors section of the company's website. Thank you for joining us today for Kaleyra's Third Quarter 2021 Earnings Conference Call. You may now disconnect.