Kaleyra Inc (KLR) 2022 Q1 法說會逐字稿

Good afternoon. Welcome to Kaleyra's First Quarter 2022 Earnings Conference Call. After the market closed, Kaleyra released an unaudited results for the first quarter ended March 31, 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.

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 the Form 10-K, for a summary of 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 or specifically disclaim any obligation to update, 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 will refer to adjusted gross profit margin, adjusted EBITDA, adjusted earnings per share. These metrics are not determined in accordance generally accepted accounting principles and, therefore, are not susceptible to varying calculations. A definition, calculation and reconciliation to the financial statement 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. Please proceed, sir.

Welcome, everyone, and thank you for joining us today. For those 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. 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 businesses and their customers.

Brands often face coverage gaps when trying to communicate with their customers, especially in industries that require security and must prioritize reliability, such as financial institution and health care. Our mission is to help build lasting business to customer relationships for our partner brands across channels and to do so while providing service that our clients can trust.

After continuing to execute against our growth strategy, our 2022 first quarter represents another meaningful step forward in many areas of our business. The Kaleyra of today has increased capabilities and influence across our geographic footprint and channel offering, and we have a real opportunity to compete in more markets and at a greater scale as we move closer to realizing 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 shortly. But before I hand over the call, I'd like to recap a few recent highlights from our first quarter.

I'll start with a financial overview of the quarter. Our first quarter revenue was $80.5 million, up 103% from the same comparable year ago period. From a profitability perspective, we are encouraged that we were able to exceed expectations across the board and do so while investing in the business and in our growth strategy. For example, our first quarter gross profit and adjusted gross profit were $17.7 million and $19.3 million, 180% and 198% increase from the last year's Q1, respectively, while our adjusted EBITDA increased over 600% in the first quarter, totaling $6.2 million.

In addition, both our operating cash flow and adjusted earnings per share remain positive. Our cash and equivalent position remains incredibly strong at over $95 million. On a pro forma basis, giving effect to the mGage acquisition as it had occurred on January 1, 2021, our key metrics significantly improved as well, with our adjusted gross margin outpacing that of last year at 24% compared to 21.4% in the prior year period, and adjusted EBITDA almost doubling from the prior year period from $3.2 million to $6.2 million.

We were able to achieve these results despite certain headwinds we faced during the quarter, namely distinct regional challenges and overlapping geopolitical and macroeconomic factors, including the ongoing global pandemic, the war in Ukraine and recent market volatility and adverse effect on foreign exchange rates. These headwinds have persisted, which we believe may affect our previously projected growth for 2022.

Specifically, there were 2 significant challenges in the quarter that contributed to our top line. First, we faced significant foreign exchange headwinds in Europe. In the first quarter, the broader geopolitical landscape in Europe began to show signs of turmoil. Although we were still free of direct exposure to Russia and Ukraine and maintain a diverse geographic customer mix overall, nearly 30% of our revenue comes from within the European countries, and many of those contracts are transacted in euros. We saw increased volatility within the foreign exchange rate market in the first quarter, enough that when compared to last year Q1 exchange rates, this year, revenue was reduced by nearly $2 million in the first quarter. This impact, when extrapolated over the full year, translates to our European revenue being worth 10% less in 2022 than they were in 2021.

And second, we were faced with harsh pricing competition in one of our geographies, Brazil, due to what we believe to be unique circumstances in that region during Q1. We decided to avoid compromising our business fundamentals and stayed true to our financial priorities as a business. In doing so, we maintain the healthy, sustainable revenue source and margin that we have prioritized since our founding and continued to deliver high-quality services for our partners.

Due to this environment, it will take additional efforts to course correct and return to our prior level of top line growth. As many of you know, our business is characterized by deep relationships, and we are committed to continuing to drive our sales engine and integrate new customers into our business to foster our growth. We typically find that our sales cycle can last between 3 to 6 months and we have a robust pipeline of new customers to work with in enabling this growth.

Also, when it comes to foreign exchange rates, we believe that it's prudent to view rates between euro and the dollar as a headwind in the near term. Although we expect rates to stabilize in the coming quarters, we have accounted for these headwinds in our current models.

So as Giacomo will discuss at the end of this section, with those challenges in mind, we have decided to update our revenue forecast for the year. We have made a 10% downward adjustment to our revenue outlook for the 2022 fiscal year and aligned our outlook for the second quarter to match this reduction overall. However, while we adjust to our current climate, our focus remains on maintaining our consistent profitability metrics and driving healthy growth across our business. We believe that revenue growth, at the expense of underlying fundamentals of our business, is unsustainable and we are committed to linking our growth to our ability to drive profitability and maintain our improved margins.

We are proud of our team's perseverance and their unwavering commitment to build a sustainable and valuable business moving forward.

Before I pass it over to Giacomo in just a moment, in addition to our financials, there were a few operational highlights that stands out as well.

Looking at some of our key operating metrics. In the first quarter, we delivered 14.4 billion billable messages and connected 1.6 billion voice calls. In our largely volume-based business, this reflects our ability to leverage the benefits of scale and is an area in which we hope to drive continued growth in the future.

Also, last quarter, we introduced a new KPI, dollar-based net expansion rate, which highlights the rate at which customer accounts increase their usage of a product, extend their usage of a product to new applications or adopt a new product within the Kaleyra platform. We think that dollar-based net expansion rate is a meaningful indication of our efforts to increase wallet share and revenue from existing customers and are pleased to report that our Q1 dollar-based net expansion rate was 130%, in line with the best in the industry.

Also, as many of you listening today well know, in the first quarter, we were selected by Bosch Group, a leading global supplier of technology and services, as their trusted vendor to power the Bosch Mobility Solutions cloud communications in India. This win reflects the success of our efforts to expand our presence in this region, a geography that we see as a valuable opportunity with a flourishing tech and software ecosystem and young population. And with this win, we have added another Fortune 500 brand to the already extensive list of top global enterprises that choose and rely on Kaleyra. We look forward to our continued partnership with the Bosch team and the additional expansion opportunities we are posting in the Indian market.

In addition, Kaleyra supported India's rapidly expanding Unicorn Startups System, providing our platform to 18 unicorns in India, including Mobile Premier League, Vedantu, Licious, Pharmeasy, ShareChat, Cure.fit, Grofers, BlackBuck, and the Good Glamm Group. Also, we partnered with Banca Sella, a leading Italian bank, to provide an innovative video communication solution for the bank's new wealth management platform. Kaleyra's video technology facilitates Banca Sella's remote customer interactions, which has managed customer relationships. Partners like this one provide a foothold in video communications, an area of our omnichannel strategy that we are expanding.

In addition to new wins and partnerships, Kaleyra was recently named CPaaS Provider of the Year at the Juniper Research Future Digital Awards 2022. Recognition from a major market research group validates our team work to build the most comprehensive and innovative platform of services.

In summary, we are encouraged by our momentum in many strategic areas of our business as we move into the second half of the year. Although headwinds have dampened our growth in 2022, we are confident that we have the team and the processes in place to remain agile in the face of challenging environments and that our business remains very healthy. We look forward to driving sustainable value across our business in the quarters ahead and continue to believe that our growth strategy has us positioned to be successful in this initiative.

As a reminder, our growth strategy on 3 main pillars. One, we are focused on expanding our geographical footprint. As mentioned, Kaleyra revenue comes from global customers, and we are working to both expand our footprint and maintain our diverse revenue split among geographies. This objective is driven by our view that the CPaaS market, as a whole, remains very fragmented and unpenetrated in many parts of the world. We are well positioned to expand our footprint to other geographies that would benefit from CPaaS support. After last year's expansion into American market through mGage infrastructure, we continue to have around 1/3 of the revenue from each of the Americas, approximately 38%; Europe, approximately 29%; and Asia, approximately 33%, a favorable balance that makes Kaleyra one of the most prominent and geographically diverse CPaaS companies in the world.

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

And lastly, we remain committed to secure, reliable and trusted service. Our business thrives in an industry 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 that their interactions with consumers are handled with the utmost security and consistency.

Kaleyra delivers on that in a way that no other industry player does. While others strive for partner 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.

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

Thank you, Dario. Turning now to our financial results for the first quarter ended March 31, 2022. As Dario mentioned, our total revenue in the first quarter increased 103% to $80.5 million from $39.7 million in the comparable year ago period. The increase in revenues was driven by the addition of mGage, which contributed $32.1 million in the quarter. On a pro forma basis, given the effect of mGage's acquisition, if it had occurred on January 1, 2021, our revenue growth was 12.4%, while all other KPIs outpaced those of the prior year period with pro forma adjusted gross profit increasing by 25.6% and adjusted EBITDA exceeding 90% period-over-period.

Gross profit in the first quarter increased 180% to $17.7 million from $6.3 million in the comparable year ago period. The increase was driven by the effect of business combination with mGage. Gross margin in the first quarter of 2022 increased to 22% compared to 16% for the first quarter 2021. The increase in gross margin was mainly due to the mGage and Bandyer integrations and increased performance by Kaleyra video, Kaleyra voice as well as by The Campaign Registry.

Net loss totaled $13.2 million or $0.31 per share based on 42.2 million weighted average shares outstanding compared to a net loss of $10.4 million or $0.34 per share based on 30.4 million weighted average shares outstanding in the comparable year ago period. The increase in the net loss was mainly due to the amortization of acquired intangibles and the accrued interest expenses on convertible notes.

Adjusted gross profit, a non-GAAP measurement of operating performance, increased 198% to $19.3 million from $6.5 million in the comparable year ago period. Adjusted gross margin for the first quarter of 2022 was 24% compared to 16% in the comparable year ago period.

Adjusted net income, a non-GAAP measurement of operating performance, increased 219% to $2.3 million or $0.06 per basic share based on 42.2 million weighted average shares outstanding and $0.05 per diluted share based on 52.1 million weighted average shares outstanding from negative $2 million or negative $0.07 per both basic and diluted share based on 30.4 million weighted average shares outstanding in the comparable year ago period.

Adjusted EBITDA, a non-GAAP measurement of operating performance, increased 641% to $6.2 million or 7.7% of total revenue compared to negative $1.1 million in the comparable year ago period. The increase in adjusted EBITDA was primarily due to the effect of business combinations with mGage and Bandyer and cost synergies between the 2 legacy businesses as well as by The Campaign Registry.

At the end of the first quarter, cash, cash equivalents, restricted cash and short-term investments were $95.2 million compared to $97.9 million as of December 31, 2021. Quarterly net cash provided by operating activity was $3.2 million in the 3 months ended March 31, 2022, compared to net cash used in the operating activity of negative $8.2 million in the comparable year ago period.

Our solid financial position at the end of the first quarter is also reflected in our net current assets, which exceeds $74 million. Our debt financing strategy is only marginally exposed to the foreseeable raise in the interest rate, with over 80% of our financial burden at coupon interest rate and an average variable interest rate under 3% bearing on our loans with Italian banks.

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, which ends on December 31, 2022.

Overall, we continue to be highly confident in Kaleyra's financial health as well as our ability to sustainably and profitably grow for the foreseeable future. As Dario explained, we proactively reassessed our current climate and decided to adjust our full year guidance to prioritize the quality of services and products delivered to our customer over unsustainable revenue growth and compressed margin.

We currently expect revenue for the second quarter to range between $81 million and $83 million, representing 52% growth at the midpoint compared to the same year ago period. For the full year 2022, we expect revenue in the range between $360 million and $365 million, representing 35% growth at the midpoint compared to 2021.

This completes my financial summary. I'd now like to turn the call back over to Dario to wrap up our remarks for the call. Dario?

Thanks, Giacomo. Looking back, while we were confronted with the broader global economic landscape that impacted our quarterly revenue, we believe that we took meaningful steps forward in the first quarter as we continue to invest in our omnichannel platform and partnership while still driving profitability.

Our product suite continues to grow in both depth and breadth, and the quality of our service is as strong and fast as ever. Our geographical footprint continues to expand into a healthy global balance that we will look to build on moving forward. And our stride into new growth areas, including Kaleyra video and voice, along with the promising results from The Campaign Registry, have continued to drive leverage into our operating model.

As we move into the summer months, we do so with conviction in our long-term growth strategy supported by a strong balance sheet and healthy business fundamentals. Above all, we will continue to build on our track record and positive momentum as we advance along our journey to become the trusted partner in the rapidly expanding and massive CPaaS market.

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

(Operator Instructions) Our first question is from Timothy Horan with Oppenheimer & Co.

Dario, did you focus a little bit more on profitability and cash generation in the quarter than growth? Was that a conscious effort? Because I noticed your gross margins were up really strong. And I guess related to that, is this a good run rate for the gross margin percentage?

Yes, indeed. We are focusing on the quality of the revenues as we did in the previous quarters Q3 and Q4. And obviously, we have to face the volatility of the exchange rate. But I believe that apart from the top line, all the other metrics of the profit and loss are positive and also the cash generation is positive. So it has been intentional, yes, indeed.

And so obviously, it's a balancing act. Do you think the industry can still grow 30% per year after this year? And can you grow in line with the industry? Because it looks like you grew around 15% normalized for the currency this quarter. Or do you think the industry is maybe more like a 20%, 25% grower and maybe you'll grow a little slower but with higher margin?

Firstly, it's better to segment by geography because every geography has its own dynamics. And now Europe is cumbersome because of the war, because of the pressure on the energy cost and inflation. The United States is going well. I see the United States not very affected. And Far East, India, in particular, is still very much growing. So I expect the industry, the market as a whole, to keep on growing, maybe with some differences between geographies and maybe with a temporary slowdown during this unexpected and undesired situation that we are in, in Europe.

Our next question is from Lance Vitanza with Cowen and Company.

A nice job managing through a tough environment. My question is actually to drill in a little bit more on the gross margin. It seems like the biggest organic driver of the improvement was favorable mix shift with a lot more of the video and the voice versus the text. Could you remind us the margin differential for those 3 products and then if you could talk about the revenue share, the volume share, for each of those products today versus maybe where you think that, that share goes over the next year or 2 just to sort of try to get a sense for maybe how additional progress on the mix shift could further augment the margins going forward?

Yes, sure. This is Giacomo. So in terms of volume, we grew about 20% in messaging, and we grew about 33% in voice. And this is pro forma growth. And this is very important because on voice, we have a profitability that is, on average, depends on geography but is doubled in messaging, so growing much more on voice. Video is a new product with a profitability that is almost 3x the messaging and was not included last year. So again, yes, with a better mix, we can improve our margin going forward.

Okay. Great. And then if I could, just my follow-up on the cash flow and liquidity. You did better than we had modeled in the first quarter. But for the full year, we had previously expected that Kaleyra would generate at least a little bit of cash, and that now seems unlikely. What do you think a reasonable estimate would be for cash at the end of this year? Should we be thinking like in the $85 million range?

Yes. We are looking very carefully at the operating level. This quarter is positive by $3.2 million. And as you know, this quarter for seasonality is the weaker quarter in the year for the cash generation. So next quarter will be better and Q3 and Q4 are stronger. So we are looking for better operating generation of cash in the future.

Okay. So then I had it wrong. So my premise that you would actually be burning cash over the balance of the year, you're saying no, you'll actually do better as we go throughout the year here. Okay. All right.

If I may just add a little color, at the end of the year, also, we will have paid back more than $10 million of the principal of the income and debt from the European banks. So including the free cash flow is the payback of more than $10 million.

Our next question is from Michael Latimore with Northland Capital.

I'm [Vivek] on behalf of Mike Latimore of Northland Capital. I have a couple of questions here. The first one is, what are the opportunities for The Campaign Registry outside the U.S.?

Well, The Campaign Registry is still looking for opportunities outside of the U.S., and it's posting opportunities in multiple jurisdictions, especially in the Western countries. And we think that we can exploit this business model in other geographies, definitely, we are working on it.

All right. My second question is, are any specific verticals showing particular strength or weakness?

Well, the banking and financial institutions, very stable, keep on growing steadily like it did over the last few years because of more mobile banking in the world rather than less mobile banking. And also the tax base, especially in India, is booming. We won business with a number of new unicorns in India. In year 2021, India generated 42 new unicorns out of which 18 are Kaleyra customers. And I see a lot of traction over there.

And our next question is from George Sutton with Craig-Hallum Capital Group.

So guys, the estimates for the quarter were about $85 million, and you came in at $80 million, and you referenced $2 million related to FX. So I just wanted to walk through the other deltas. And you did point out Brazil, I wanted to better understand the dynamics in Brazil. Did you walk away from customer opportunities? Did you walk away from specific programs? Are those programs you can go back after? So that's the gist of my question.

Well, the only thing that I can say is that there has been kind of a price war in Brazil, and we do not like to play price wars. So basically, we've exited. And that's very peculiar of Brazil because of the dynamic of the market in Brazil. So that's why considering how we want to keep on working on the quality and the sustainability of our revenues, we basically walked away from a situation that wasn't healthy. But we definitely retained the customer. This is a global customer, it's not a local customer. And we're working together with them towards other geographies. So I'm not concerned.

And again, if I'm trying to account for the $3 million delta, where would you point to the $3 million delta from original expectations?

That's explained the delta basically. It's a large account, less volume in Brazil as well it is in Brazil, and that explained it. If we take off the FX effect and that specific situation in Brazil, the organic growth of the rest of the group has been over 20%, 22%.

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

Okay. Thank you very much 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?

Thank you. 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 for Kaleyra's first quarter 2022 earnings conference call. You may now disconnect.