Kaleyra, Inc.
Q3 2021 Earnings Call Transcript

Published:

  • Operator:
    Good afternoon, welcome to Kaleyra's Third Quarter 2021 Earnings Conference Call. After the market close, 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 such 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 margins, 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 provides 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.
  • Dario Calogero:
    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 CPaaS provider. From a high level, we provide our partners with an omnichannel suite of powerful communication, API's 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 healthcare. Our mission is to build lasting relationships between brands and their customers across channels, and to do so while providing services our client 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. Why 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 roadmap. This quarter was the first look into our business past the completed integration of our most recent acquisitions, mGage and Bandyer. Today, a new Kaleyra has emerged, one with the same vision, but with increasing 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 represented in 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 provide 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 having around a third of our revenues from each of the Americas approximately 41%, Europe approximately 27% and Asia, approximately 26%, balance that makes Kaleyra one of most prominent and geographically diverse CPaaS companies in the world. An additional point worth noting is that messaging termination costs, meaning the cost to deliver attacks based message to its desired endpoint are usually lower in the United States. So increasing our presence domestically in U.S. presents an opportunity to improve our margin profile as well. With our margin profile in mind, 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 cost 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 affirmation 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 broadest 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 offer 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 or year-over-year. This was now validated our regional growth strategy is still viable within our traditional business unit. As we look to close out the year, we believe we have a clear strategy to drive sustainable long-term growth. That strategy relies on three main pillars. Pillar number one. We're focusing on expanding our graphical footprint. As mentioned, Kaleyra revenues come from global customer and we are working both expand our footprint and maintain our diverse revenue split among geographies. The submission is driven by our view of the supermarket as a whole, which is very fragmented and under penetrated 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. Pillar number two, we will continue to invest in our omni-channels CPaaS service. It's our job to go to meet our partners on whichever channel they require to best connect with the customers. As we the invoice communication proliferate globally, expanding into new communication streams remains an important area of investment for our team. And pillar number three, we remain committed to secure trust and service. Our business tries in industry that the highest standard for security in their communications with that consumers, banks, financial institutions, healthcare etc., only to be able to trust their interaction with consumers are 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 trust and secrecy influences customer retention and that was the right partners. This is language we can excel. In support of our growth pillars, strategic investment activities an important part of our path forward as well. The CPaaS market is worth $8.7 million this year, and we were 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 audio channel 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 the local level in each region. In such an ugly fragmented industry, white 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 the book will be managing immunizations. Why we would like to participate with our industry, we are sure that we can remain patient and committed to find the only the right partners those that fit our growth strategy. Finally, we have a few non-operational updates to share before I pass it over to Giacomo in just a moment. First, we noticed we've successfully uplifted from the New York Stock Exchange American to the New York Stock Exchange. You are dating to NYSC 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 unanswered investment profile will open more opportunities and generate more interest from the broader investment community. Also in September, Kaleyra was recognized by Juniper as an established leader in the global CPaaS market. Juniper research is one of the leading independent analyst firms in the mobile and digital tech sector. So to receive some 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 is a major player within the CPaaS. In summary, this quarter was one of tremendous growth in the reaffirmation of our deliberate growth strategy. And now turn the call over to our Chief Financial Officer, Giacomo Dall'Aglio to discuss our financial results for the quarter, either later meetings. Giacomo?
  • Giacomo Dall'Aglio:
    Thank you, Dario. Turning down to our financial results for the third quarter ended 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 increase of 56% from $54 million in the previous quarter. The growth during the quarter was being done 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 profits 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 an increase in revenues for the quarter that outpace cost increases. Gross margin from the third quarter of 2021 increase to 23% compared to 20% for the third quarter of 2020. The increasing in gross margin was mainly due to the mGage and Bandyer integration and increase performance by color, medium color avoid as well as by the campaign registry, our software as a service offering that has developed over the past quarter. Net loss total $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 median or $0.19 per share based on $28.3 million weighted average share outstanding in a comparable year ago period. These represents 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 or non-GAAP measure of operating performance increased 174% to $21 million from $7.7 million in a compatible year ago period and increase 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 non-GAAP measure of operating performance increased to 173% to $8 million, 9.5% of total revenue, compared to $2.2 million 5.6% of total revenue in the comparable a year ago period, and maintained 271% from $2.2 million in the previous quarter. The increase in adjusted EBITDA was primarily due to the effect of the business combinations with mGage and money and cost synergy between the two legacy businesses. Adjusted net income our 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 your spent ability. 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, in the comparable year ago period. These are present 618% increase from $500 to $4,000 in the previous quarter, At the end of the third quarter, cash, cash equivalents restricted cash and short-term investments were under $188.5 million compared to $37.8 million at December 31, 2020. It also considered the Bandyer acquisition happened in July and the warrants repurchase of August 2021. Of no to during the quarter, we entered in a warranty repurchase agreement with a group of institutional investor for an aggregate amount of 1,684,470 shares of our common stock. The stock was the price $3.25 per underlying share on 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 errors and operational success. Before I turn the call back over to Dario, I now take a few minutes to provide our financial outlook for the remainder of the year. As a reminder at this time Kaleyra provides a 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 is a reminder for 2021 Our fiscal year end on December 21, 2021. As of today is called 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 represent an increase to our previous outlook. Overall we remain highly confident in the financial areas 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 operation progress during the quarter. Dario?
  • Dario Calogero:
    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 inwards into the new growth areas including color video and voice along with promising results from the company registry have begun to drive leverage into our operating model. Combined with 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 into execute against our growth strategy. Moving forward, we'll 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:
    Certainly, and thank you very much. And our first question will come from George Sutton with Craig-Hallum. Your line is open.
  • Unidentified Analyst:
    Hi guys, 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 have seen other CSPs approach enrollment and the traction you've seen so far? And then if you were able to could you maybe quantify the campaign registry contribution this quarter?
  • Giacomo Dall'Aglio:
    Yes, this is Giacomo. Hi, George. The company registry is overperforming as we said the first budgeting of the year. And we are in line with the metrics that we already said last August. We don't provide this. But let me say we are very happy with the performance we offer in campaign registry. Indeed, we are still in the ramp up phase though. So the yet best to come, the best year to come.
  • Unidentified Analyst:
    It'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?
  • Giacomo Dall'Aglio:
    Correct, well video is kind of the flavor of the month because the pandemic brought very in a preponderant way the 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're discussing with them the possible use cases for these applications and transaction. As soon as we will have news, we will press release I think, if the customer will allow us to press release the achievements but it's going well, so far, so good.
  • Unidentified Analyst:
    Got it. Thanks for taking my questions.
  • Giacomo Dall'Aglio:
    Thank you very much, George. Hope to see u soon.
  • Operator:
    And our next question comes from Tim Horan with Oppenheimer. Your line is open.
  • Tim Horan:
    Thanks, Brad. Can you talk about how revenue progress up through the quarter particularly for mGage, do they exit the quarter at a much higher rate than while you entered the quarter because I know, they had some pressures in the second quarter. Just talking a little bit about the pace of any changes?
  • Dario Calogero:
    In terms of this quarter, mGage pro forma was $34 million in the quarter, in the three months. And in the first month that we are consolidating in June for Q2, they performed $10.2 million, so we have step up of mGage, also monthly revenue. And we see starting to see also some synergy between the two platforms cross selling opportunities.
  • Tim Horan:
    And can you provide the same for the gross profit? Did you know 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?
  • Dario Calogero:
    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 overall amount of Kaleyra volume, considering nodes 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 and voice. So all these elements and drivers bring better margin for Kaleyra.
  • Giacomo Dall'Aglio:
    Yes, if I can add some color, the two drivers of the gross margin expansions basically, the most important ones, larger presence of the U.S. market, which typically enjoys larger gross margin, and the mGage contributed significantly on this and the change of mix in product where new channels with gross margin profit came significantly into the picture this quarter with voice, video and the campaign registry.
  • Tim Horan:
    Thanks for the volume metrics on 13.5 billion messages and 1.5 million 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?
  • Dario Calogero:
    Yes, let's dig into the numbers and Giacomo would tell that.
  • Giacomo Dall'Aglio:
    So messaging volume increased 114% quarter three last year and voice increased 36% in volume.
  • Tim Horan:
    That's year-over-year, that's great. That's great. And then two more from me, sorry. The sequential guidance, I mean usually in the fourth quarter, there's a lot of seasonality. And there is 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 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 one-time items or something else to think about?
  • Dario Calogero:
    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 is an item the fourth quarter. And secondly, yes, we want to stay a little bit prudent in terms of 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 Easton?
  • Tim Horan:
    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 being conservative, but are already seeing much impacted into the revenues and usage at this point from COVID?
  • Dario Calogero:
    No. We don't see any impact. We keep on seeing progress and the recovery in the economies in the geographies where we operate. We might be a little bit more conservative, because with the counting of the autumn and the winter, it might be that we get into 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 vaccinations. So Italy is good, because rate of vaccination in Italy is the highest, in Europe now is 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 as anything else related to the COVID.
  • Tim Horan:
    Yes, unfortunately, and just I know you've seen there is good synergies on the revenue on 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. Thank you.
  • Dario Calogero:
    Yes, first thing, the starting point in the process is starting with the existing customers trying to expand the reach new geographies that two parties in partners have brought into the manage between Kaleyra and mGage. Also some upselling in the omni-channel play, especially in the direction between former Kaleyra and current -- let me say mGage customer base, where we definitely are active because the opportunities are 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 accelerations of this change. So let me say, video is definitely very much of interest in multiple geographies. Also, the omni-channel play in general, voice and also the -- if the massively over the top stuff. And this is also the focus of the sales business development teams, because these are more interesting goals in terms of financial performance is obvious.
  • Tim Horan:
    Thanks, guys, congratulations.
  • Dario Calogero:
    Thank you very much.
  • Operator:
    . Thank you. Our next question will come from the line of Lance Vitanza with Cowen. Your line is open.
  • Unidentified Analyst:
    Hi, this is Jonathan in for Lance. Good afternoon, Dario and Giacomo. And congrats to the quarter. That's the same things are working. Well, my question here is in terms of 4Q revenue guidance, can we expect mGage to contribute a similar amount somewhere between 34 to 35 or perhaps a little more or less? How should we think about mGage in the fourth quarter?
  • Dario Calogero:
    No, I say that mGage, there is less seasonality, but doesn't mean that mGage doesn't not grow. mGage is growing. So we expect to a better performance Q4 than Q3 also because, as we say that we received mGage a lower point in June. So we are trying to recover.
  • Unidentified Analyst:
    Understood. And my last follow up questions. I know you mentioned that there's a lot of press and video. But if I may play advocate here 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 been headwind or perhaps are you speaking with your customers and you've seen that video will be an integral part of a business going forward? Thank you.
  • Dario Calogero:
    This is a very good question. And I thank you for the question, because this is allowing me to not 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 as care applications where it is being used for the video session between the medical doctor and the patient or a maintenance of machineries. So these kinds 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 nailed down to change the way they interact with their consumers.
  • Operator:
    And our next question comes from Michael Latimore with Northland. Your line is open.
  • Michael Latimore:
    All right, thanks. Congratulations, that was a great quarter, mGage improved nicely on a sequential basis. Is that based on seasonality in their markets, or do you feel like there was some improved execution there?
  • Giacomo Dall'Aglio:
    Thanks to Kaleyra's mGage management that started the synergy and also starting the new let me say strategy and the Kaleyra umbrella.
  • Dario Calogero:
    Yes, we have. Hi, 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 the market. And also, the company is as strong to be very solid, resilient, and while at the end was performing, so performances.
  • Michael Latimore:
    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 when proceeding?
  • Dario Calogero:
    Okay, it is a process, there are several hundreds of counterparties in this process, and you don't need to renegotiate the conditions overnight. But definitely wherever we are the double booking of the contracts with termination point and we sit down and we'll discuss with them better contracts and those a unified contract, because they used to be two before the marriage. But now we have one seven, that's the reason why we should have two different contracts. So this process, which is ongoing, still ongoing. And, frankly speaking this a never ending process. My -- the way termination, fees negotiation and relationship happens, it's more partnership rather than a commercial team.
  • Michael Latimore:
    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?
  • Dario Calogero:
    Yes, India perform well. And yes, in either recovery and start to increase as in the past as a outperformance in the group. So, we are very happy with India performance.
  • Giacomo Dall'Aglio:
    Yes, so another thing that this was mentioned that I forgot to say before is that all new additional revenues that we are getting are recurring revenues. So the fact of the business model, and let me say the service model that we put in place on video, on voice and messaging, it's always be as you've got. So an increasing volume of our existing customers, plus the addition of new customers and the addition of new visa addresses is always a recurring revenue stream, 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 very easily evolved into a partnership with our largest customers. And it's always important when you think of Kaleyra to consider that 80% of the revenues with the top 40 customers. With an average tender, which is like all the thing is, so it's more a partnership relationship rather than a Bandyer customer relationship.
  • Michael Latimore:
    Yes, okay. All right. Thank you,
  • Giacomo Dall'Aglio:
    Thank you, Mike. Hope to see you soon.
  • Operator:
    And our next question comes from Allen Klee with Maxim Group. Your line is open.
  • Unidentified Analyst:
    Hi, this is Derrick on for Allen. My first questions kind of regarding COVID as well. And you mentioned Brazil was kind of seeing some issues that I was kind of wondering how you saw improvements there similar to India?
  • Dario Calogero:
    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 is a little less than India, in terms of grow, but yes we are recovering those to Brazil.
  • Unidentified Analyst:
    Okay, thank you. 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?
  • Dario Calogero:
    Yes, so that the increases margin is very important significant this quarter. And also, video can give in the future, a good contribution to the margin because we reduce the margin video higher than 80%. The Campaign Registry is still 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 maintain these jump and also improve margin going forward.
  • Unidentified Analyst:
    Okay, thank you. Congrats on the quarter.
  • Dario Calogero:
    Thank you very much.
  • Operator:
    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.
  • Dario Calogero:
    Thank you very much. So thank you all for joining us on today's call. As always, we'd like to thank our extensive worldwide network of partners and investors as well as our employees. We're working hard for this results and for the continued support. Operator.
  • Operator:
    Thank you. I would like to remind everyone that the 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.