Kaleyra Inc (KLR) 2022 Q3 法說會逐字稿

Good afternoon. Welcome to Kaleyra's Third Quarter 2022 Earnings Conference Call. After the market close, Kaleyra released unaudited results for the third quarter ended on September 30, 2022. 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. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Joining us today are Kaleyra's Founder and Chief Executive Officer, Dario Calogero; Chief Financial Officer; Giacomo Dall'Aglio; and VP of Investor Relations, Colin Gillis. Following their remarks, we will open the call for questions. I would now like to turn the call over to Kaleyra's VP of Investor Relations, Colin Gilles. Please go ahead.

Thank you. Before we begin, we would like to remind everyone that 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 the 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, adjusted gross 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 of 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 our Founder and CEO, Dario, for an overview of Kaleyra's third quarter. Dario?

Thank you, Colin. Welcome, everyone, and thank you for joining us today. As usual, for those of you who may be new to our story, I will begin with a brief overview of our business. Kaleyra is a communication platform as a resource provider. At a high level, we provide our global partner base with an omnichannel suite of powerful APIs and visual tools to bridge the communication divide between brands and their customers. The company, especially those that require security and must prioritize reliabilities such as financial institutions and healthcare providers, often face coverage gaps when trying to communicate with their customers. Our mission is to have these lasting business to customers relationships for our partners plans across channels, and to do so while providing a service that our clients can test.

To reiterate, our growth strategy relies on 3 main pillars: One, we are focused on expanding our geographical footprint. Kaleyra's revenue comes from the global customers, and it's a priority for us to both expand to new geographies and maintain our diverse global revenue footprint. Specifically, Tier 1 mobile network providers represent important partnerships for our business as they are also the key to new geographies and expansion opportunities. It is our view that the CPaaS market as a whole remains very fragmented and underpenetrated in many parts of the world, and that we are well-positioned to meet CPaaS demand in underserved areas. 

After last year's expansion into American markets through engaged infrastructure, we continue to have around 1/3 of our revenue from each of the Americas, around 44%; Europe, around 28% and Asia, around 28%, a favorable balance that makes Kaleyra one of the most prominent and geographically diverse CPAs company in the world. Two, we will continue to judicially invest in our Omni channel suite of services. It's our goal to meet our partners on whichever channels they require to best connect with their customers. Bidonvoice communication continues to expand globally, and we believe that building our platform to accommodate new publication streams remains an important area of investment for our team. And lastly, we remain committed to secure, reliable, and trusted service. Our business tries in industries that have the highest standards of security for their communications with their consumers, banks, financial institutions, health care, et cetera, all need to be able to trust their interactions with consumers and with the utmost security and consistency.

Kaleyra delivers on that in a way that no other industry player does. While other drivers for partner volume, we know that our expertise in trusted CPaaS influences customers' retention and that with the right partners, this is an area which we can excel. Through our diverse geographical mix of Tier 1 mobile providers' concentrated investments in our Omni channel platform and secure service, we believe we have a real opportunity to scale and realize our long-term vision of being the trusted global CPaaS provider for our partners. Our Chief Financial Officer, Giacomo Dall’Aglio, will discuss our financial results for the quarter shortly. 

But before I hand over the call, I'd like to recap a few recent highlights from our third quarter. Financially, this quarter, we continued to manage our business with profitability in mind, including a strong increase in our cash position. Overall, our third quarter revenue was $83.9 million, in line with our previously provided outlook despite the adverse effect of foreign exchange rates. Largely due to short-term headwinds driven by heightened connectivity costs, our gross profit decreases rightly, impacting our adjusted gross margin of 21.5% for the third quarter. Our net loss for the quarter was $11.7 million compared to $11.9 million in the comparable year-ago period. Most importantly, our balance sheet remains strong with $87.6 million in cash and cash equivalents and restricted cash and short-term investments at the end of the quarter or up 17% from the prior quarter.

We believe as the industry environment continues to normalize in the coming quarters, our effort to prioritize profitability will serve our business well. Even with these considerations, our team's diligence and perseverance has allowed us to continue investing in our growth strategy as we dense by our KPI and partnership success in the third quarter. Moving to some of our key operating metrics. This quarter, we delivered 11.6 billion dilate messages, a reflection of our ability to leverage the benefit of scale within our SMS segment. Additionally, we connected 2.4 billion voice costs in the third quarter, showing expansion in our voice segment and a sign of the opportunity available within this channel moving forward. In Q3, our dollar-based net expansion rate was 94%, calculated based on revenue from the same customer base in the comparable year-ago year.

Also, building on its first million-month last quarter, the campaign registry continued to perform in our third quarter, showing sequential positive growth in revenue with sustained high profitability. The Contain Registry continues to be a part of our trusted CPaaS offering as well as a margin driver for our business. Moving to our operational highlights. In the third quarter, we announced several partnerships. 

First, as Amazon Pay India preferred service provider, our API solution already integrated into the Amazon Pay platform will trigger messages for highly critical one-time pass-through and confirmed payment details for vendors and users. These integrations are expected to enhance customer experience and increase customer satisfaction. Also, we are partnering with TrueCaller, an industry-leading color ID service provider, to enhance our ability to provide trusted and safe business communication services, through TrueCaller's proprietary verified business Caller ID solution. Partnerships like these help to expand both our brand and our customer footprint, and we expect to continue pursuing similar opportunities in the future.

In addition, we reached a key milestone with one of our existing partners in the third quarter, Google Verified calls. We crossed 20 million Google Verified costs managed through Caleroice API in 2022, with 10 million of those calls managed in August alone. Part of our operational success over the last year has been thanked to the high work of Chief Business Officer, (inaudible) celebrated his 1-year anniversary with the company this quarter. Maur's effort, especially towards developing relationships with Tier 1 providers and with large enterprise customers, has been exceptionally helpful in our mission to expand Kaleyra's Wichan partner growth. Across our business, we were able to achieve this result despite persistent headwinds faced during the quarter; Global economic uncertainties driven by overlapping geopolitical and macroeconomic factors, including a slowing global economy, the recent market volatility, and uncommonly high inflation. 

However, 2 main factors stand out to us. First, we continue to face significant exchange headwinds. We saw increased volatility within the foreign exchange rate market in the past few months, enough that when compared to last year Q3 exchange rate, this year revenue was reduced by nearly $4.7 million in the third quarter. Second, the border economic downturn continues to shift enterprise purchases in the air. Due to our commitment to secure service, our enterprise partner relationships acquired significantly more upfront diligence than for other areas of our industry. While these times to our sales cycle, the trust will build partners through this process help us maintain our strong net retention and 0% churn rate within our top 10 customers. Unfortunately, in periods of more careful enterprise spending, this creates an even more laminated sales cycle and backs up our customer acquisition pipeline as a result. The typical seasonality in Kaleyra's business includes positive catalysts in the fourth quarter, including the 2022 U.S. election cycle, Vival, Black Friday Cider Monday, and the December holiday season. We don't expect this global external impact to last forever, and we are confident that our sales pipeline reflects the diligent work our sales team reported over the past few quarters. 

However, given the macro environment, we are mindful and diligent of these headwinds and believe our fourth-quarter and full-year outlook should be reflective of this. Colin will be discussing our outlook shortly. Moving forward, our focus remains on maintaining consistent profitability metrics and driving healthy growth across our business. The fundamentals of our business are top of mind, and we understand that with high-quality product and service development and implementation, we'll continue to reap increase economic benefits in the long term. We are proud of our team's perseverance and there and weathering commitment to building a sustainable and valuable business moving forward. And with that, I 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 ended September 30, 2022. As Dario noted, our total revenue in the third quarter was $83.9 million, a decrease of $109,000 from $84 million in the comparable year-ago period. The decrease in revenue in the third quarter was mainly driven by broader economic uncertainty and temporary enterprise purchase sentiment. Notably, this quarter was our first full quarter after 1 year anniversary of the Engage acquisition. Engage was to contribute significantly to our scale and global footprint over the past year, and we look forward to continuing to organically grow the business moving forward. Gross profit in the third quarter decreased to EUR 16.7 million from EUR 19.6 million in the comparable year-ago period. Gross margin for the third quarter of 2022 decreased to 19.9% compared to 23.3% in the third quarter of 2021. The decrease in gross profit and gross margin were mainly driven by an increase of cost of revenue attributable to the effect of connectivity cost.

Net loss totaled BRL 11.7 million or $0.26 per share based on 44.7 million weighted average shares outstanding compared to a net loss of EUR 11.9 million or $0.29 per share based on 41.6 million weighted average shares outstanding in the comparable year-ago period. Adjusted gross profit, a non-GAAP measurement of operating performance, decreased 14% to EUR 18.1 million from EUR 21 million in the comparable year-ago period. Adjusted gross margin for the third quarter of 2022 was 21.5% compared to 25% in the comparable year-ago period. 

Adjusted net income and non-GAAP measurement of operating performance decreased $793,000 or $0.02 $0.01 per basic and diluted share based on 44.7 million and EUR 54.6 million weighted average shares outstanding respect from $3.6 million or $0.09 0.07 per basic and diluted share based on 41.6 and 52.4 million weighted average share outstanding, respectively, in the comparable year-ago period. Adjusted EBITDA, a non-GAAP measurement of operating performance, decreased to EUR 4 million, 4.8% of total revenue, compared to $8 million, 9.5% of total revenue in the comparable year-ago period. At the end of the third quarter, cash equivalent, restricted cash, and short-term investments were EUR 87.6 million compared to EUR 97.9 million as of December 31, 2021. This completes my financial summary. I'd now like to turn the call back over to Colin to provide our financial outlook for the remainder of the year.

Giacomo. Thank you. I'll now take a few minutes to update you on our financial outlook for the fourth quarter, which ends on December 31, 2022. As we close out the year, the lasting impacts of industry-wide headwinds still limit typical enterprise and consumer spending. We foresee degrees of growth in our business, driven by Black Friday and Cyber Monday shopping, the December holiday season, Diwali, and among other factors. Therefore, we see that the investments we've made into expanding our sales team, building our partnership pipeline, and developing our technology help us in a position to take advantage of these catalysts. We remain confident in our strong fundamentals, and comfortable balance sheet, as well as our path toward becoming the leading global, trusted CPaaS.

As Dario explained, and due to many factors, including the uncertain macro environment impacting the broader technology industry coupled with elongated enterprise sales cycles married with the backlog within our pipeline. We have made the decision to update our full-year expectations based on our expectations for the fourth quarter. Kaleyra is no exception to this challenging environment. And with the typical seasonality expected, we are anticipating our revenue for the fourth quarter to range between $86 million and $90 million, resulting in full year-over-year growth at 24% for 2022. This completes my financial outlook summary. I'd now like to turn the call back over to Dario to wrap up our remarks for the call. Dario?

In summary, we are encouraged by our positive momentum in many strategic areas of our business as we look at Q4. While we were confronted with a broader global economic landscape that impacted our overall growth, we believe that we took many meaningful steps forward in the third quarter that prepared us to take advantage of the future. We continue to invest in our Omni channel platform and partnerships while still driving profitability. Our product suite continues to grow in both depth and breadth. And the quality of our service is strong and trusted area. Our geographical footprint continues to expand into a healthy global balance that we will look to build on moving forward, especially with Tier 1 mobile operators and enterprise customers. and our stride into new growth areas, including Celera video and voice, along with promising results from the campaign registry has continued to drive leverage into our operating model.

As we finish out 2022, we do so with conditions in our long-term growth strategy, supported by a strong balance sheet and healthy business fundamentals. We are confident that we have the team and the processes in place to remain agile in the face of a challenging environment and that our overall business remains very healthy. Above all, we look forward to driving sustainable value across our business as we advance along our journey to become the trusted partner in the massive and expanding CPaaS market. And with that, we are ready to open the call for your questions. Operator, please provide the appropriate instruction.

We will now begin the question-and-answer session. (Operator Instructions) We will pause for a moment as callers join the queue. Our first question comes from George Sutton of Craig-Hallum.

I wondered if you could address the normal seasonality that we would see in the business. And what we saw this Q3 and expect for Q4. So normally, we would see revenues kind of ramping up because of the seasonality. We would start to see volume discounts and campaign registry fees kick in and, therefore, influence the margins. It doesn't look like we're seeing that. So I just want to make sure I understood those dynamics.

George, this is Dario. Thanks for the question. Well, our seasonality typically comes more from Europe and India because of the decrease than the Valley holidays. So it's more a foreign thing rather than a U.S. market system, which is, in a way, (inaudible) effect. Now, if you consider that in Q4 if we would have used the same effects in Q3, if you would use the same effects of the previous year Q3, you would have made $4.7 million more. So this is something that we have carefully weighted in our expectations about Q4. Yes, Campaign Registry continues to contribute, but it's not like skyrocketing. It's in line with Q3. And that's typically related to the seasonality of the campaign. Now the future is future. So we will see exactly what will happen in November and December when we will (inaudible).

One other thing is now that we've lapped Engage, I just wanted to understand -- I understand the current environment is challenged. But when we look at long-term, say, 3- to 5-year organic growth goals that you have for the business, can you just walk through what those look like?

Well, I'm not sure I got your question. But in general, we do not segment any longer what is the legacy of Kaleyra and the legacy of Engage because, basically, the company is one company now, and we actively cross-sell internationally. Our reach to global customers coming from engaging multiple jurisdictions that were the legacy of Kaleyra. Maybe Collins can add some color to this question.

Yes. George, that's an extremely difficult question to answer right now. There's a range of outcomes as to what the growth potential is. But I will tell you this, the desire for brands and customers, right, who want to connect to their clients is not going to disappear, right? And that is what CPaaS is, right, a communication platform as a service, and it will change and evolve into different channels, but the intent to want to communicate with your clients is always going to be there.

Our next question comes from Mike Latimore of Northland Capital.

I'm Vivek in for Mike Latimore of Northland Capital. So I have a couple of questions with me. The first one is how many employees do you have now? And what are your hiring plans for the next 6 months?

At the moment, we are a little over 600 units. And we don't believe that we will increase significantly our headcount in the next 6 months because of the need to become more efficient, the company is carefully waiving its gross plan, but we will keep on investing in R&D technology, especially in our back half in India and in the Dominican Republic. And we will keep on boosting our business development teams. Does this answer your question?

Yes. The next question is, how much revenue did political traffic contribute?

We do not segment or disclose. In the political traffic, basically, we had volume coming through in the last week of October because, September, I'm sorry, because basically, we had to do some changes on our platform because the traffic resulted to be only 10-digit long code, and we were mastering the short code at Kaleyra and the legacy of Engage, which is not being used very much for political campaigns. It's more of a 10-digit long code play.

And I have one last question with me. Are our new logo prospects taking longer to design now?

I'm not sure I got the question.

Is the new logo prospects are taking a longer time to decide?

Yes, in general, especially large enterprises are elongating a little bit the decision taking processes because, given the uncertainty, management, I would say, is weighing better and longer the decision of investments, even though our services are an operating cost for our customers, basically, it's part of the overall digital transformation, and digital transformation requires investments. So as a result of these situations, it's also we are investing on business development. We assist to an increasing consistency of our pipeline, but safe cycles are not getting any shorter or getting a little longer.

(Operator Instructions) At this time, this concludes our question-and-answer session. I would now like to turn the conference over to Mr. Calogero for any closing remarks.

Thank you, operator, and thank you for joining us on today's call. As always, we would like to thank our extensive worldwide network of partners and investors, as well as our employees, for their continued support. Operator?

I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us today for Kaleyra's Third Quarter 2022 Earnings Conference Call. You may now disconnect.