Kaleyra, Inc.
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Greetings and welcome to Kaleyra Incorporated First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now like to introduce you to your host today Mr. Marc Griffin, Investor Relations. Please proceed sir.

[Marc Griffin:]

Thank you. Good afternoon and welcome to Kaleyra's first quarter fiscal 2021 conference call. Kaleyra released unaudited financials for its first quarter ended March 31, 2021 after the market closed. The press release, as well as today's replay can be found on the investor section of the company's Web site at investors.kaleyra.com.

[Dario Calogero:]

Thank you, Marc. Thank you to everyone joining us on the call today. As you are all aware, the effect of the global pandemic continue to pose challenges worldwide. But with certain geographies experiencing the continuous temporarily negative effects of government mandated lock downs. While we see positive momentum building in the United States of America as the number of vaccinated citizens rise. Meanwhile, resilience in Europe as low as the modest recovery we have been seeing in Italy and most unfortunately, India is now experiencing the worst aspect of the pandemic as cases rise. Moving on some financial highlights, reported quarterly revenues in Q1 of 39.7 million with an increase of 18% from the same period last year, demonstrating continued resilience in the recovery. We continue to experience growth in all of our major geographies with particular strength coming from regions and rest of world segment that has been less affected by -- from the pandemic. The main drivers in the quarter, were an up tick in our ecommerce customers in India, broad based positive activity within our U.S. based enterprise customers and new customers in rest of the world. In a seasonally challenging quarter, we're very pleased to see digital payments and transactions improve which grew messages up 2% on a year-over-year basis. On the voice side, costs continue to increase year-over-year and we're up 55% on that basis.

[Giacomo Dall'Aglio:]

Thanks, Dario. For the first quarter ended March 31, 2021, we reported total revenue of 39.7 million an increase of 18% year-over-year and demonstrate the continued momentum of the recovery. The revenue in the quarter was slightly below our expectation as the economic recovery was not as robust in Europe as we anticipate because of spiking COVID cases. Additionally, which are not some extremely low margin and messaging routes, that the lower revenue but had a positive effect in our gross margins. The main drivers in the quarter in our ecommerce customers in India, broad based positive activity within our U.S. based enterprise customer and new customer in the rest of the world. Our revenue base continues to move away from Italy with India, which grew 32% year-over-year, while U.S. grew 19% and the rest of the world segment was up 64%. In the quarter we processed 7 billion billable messages up 2% from the prior year period, and we connect 1.2 billion voice calls in the quarter up 55% year-over-year.

[Operator:]

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Mike Latimore with Northland Capital Markets.

[Mike Latimore:]

Yes, just with regard to the guidance for the year, it implies some solid sequential growth in the second half of the year, I guess can you just go through a few of your assumptions there? Do you assume there's kind of a reopening in the third quarter again in India, Italy? And maybe what are you thinking about in terms of campaign registry?

[Dario Calogero:]

I will let Giacomo to answer to this question.

[Giacomo Dall'Aglio:]

Related to revenue, I just want to underline that last year, we reported that in the second half 56% of the total revenue of the year. And thanks also to the reopening, we think we are in the track with the guidance.

[Mike Latimore:]

Okay, got it. And then, that sounds like mGage is about to close here. June 1, you said, any color on how mGage is performing? I know they have a bigger kind of U.S. presence, and they're in some other regions. So any color you can give us on whether mGage tracking to those original expectations?

[Dario Calogero:]

Well, Mike, I will like talk about mGage after closing and not before closing. So I will give more information and color, when we'll do the financial reporting for the second quarter at this point in time. In general, what I would like to stress is that mGage is like the perfect thing for Kaleyra, because we ended up with past closing and past combination of consumer basis with about 1/3 of the revenues coming from the United States, which will definitely improve the financial performance profile of Kaleyra. And also, we will about another candidate from Europe were mGage very significant operations in the U.K. And lastly, typically displayed between Asia Pacific and Latin America, Middle East and Africa. So what I can tell you about this combination is that mGage seems to be very, very promising. And altogether Kaleyra and mGage is becoming a very relevant player in this space. And then, very, very glad that we like three weeks away from the closing. Thank you.

[Mike Latimore:]

Okay, got it. And then, just last on the campaign register, I think you had said that you wanted to see how the second quarter played out before you gave a little more color there. That's still the plan on the campaign register?

[Dario Calogero:]

Yes, that's exactly the plan because as I said before, we need to add some data points before we can guess about the financial performances of the unit. The unit is doing well is doing great. The team is working very closely with the content service provider with the operators and the whole ecosystem seems to be, let me say supporting the approach of the campaign registry and the operator are starting to mandate registration of the campaign and the campaign service provider feel extensively testing but we start adding also some revenues income. So this is encouraging me in restating the information that after the second quarter, we'll have a better understanding of the volume, the revenues, and we can make a guess for the second half.

[Operator:]

Our next question comes from George Sutton with Craig-Hallum.

[George Sutton:]

I wondered if you could talk about the traction you're seeing so far with voice in the U.S.? And what were some of the drivers behind the growth in voice volumes in the quarter?

[Dario Calogero:]

Voice in the U.S. is at the very, very beginning so it's not yet relevant in terms of volume. The increase in volumes, I would say mainly in India at the moment. And we have also launched the services in other geographies, but we are at the very beginning. So, I would say that basically, ecommerce is the one that is taking the lead of the increase in volume and also some COVID related services like the one that we announced in India, which was called . The CPaaS supported in triage system for COVID suspects, and this is going very well. But ecommerce is definitely the service which is leading the increase in volume.

[George Sutton:]

Got you. So, I wondered if you could quantify the impact from COVID and the impact on the low margin route you exited in the quarter?

[Dario Calogero:]

The impact on COVID is captured in a way because it depends not on the pandemic itself, but on the reactions of the administration's and government calling for let me say very strict lockdown. So wherever there is a very strict lockdown in general the society, slow down and the economy behind the society slow down. So the impact is scattered that is depending on where and when the government are doing the shutdowns. What I can tell you is that I start seeing a significant improvement in deficits in the United States. But also in Europe, because there is a very significant ramp up in the supply of the vaccines in the world. In May, we are about to have roughly a couple of million of those to develop. Getting to the route in general Kaleyra as a policy were -- is being a policy provider, is a policy that is not willing to work in routes and markets where the price competition becomes unsustainable, especially because of the gray routes policy that some supplier are applying on some routes in some geographies. And so for this reason, we start becoming more and more picky in deciding where we want to work and with whom we want to work. And this is already happening with a number of large accounts, especially big digital giants, where we start seeing gross margin significantly improving that customer for this policy.

[George Sutton:]

One other question, if I could, you referenced a industry study that suggested that this market would grow 35% compounded over the next handful of years, I wondered if you could just align that with what you anticipate your own organic growth opportunity should look like over that period?

[Dario Calogero:]

Yes, well, the markets overall could be defined as the union of the strictly called the CPaaS market according to channel it's like Juniper reserves said that it's going between 7.1 billion in 2020, up to roughly 25 billion in 2025. But this is not the whole market because this is excluding the application professional messaging which is much larger and is going from 60 plus to 78 billion in 2024, if I remember one. So let me say the two segments have different growth rates, the first one being emerging, it's growing faster. And it's the one that is considered to be growing at about 35%. The other one is growing a little bit less if you blend the two markets together, I will say that the -- the duplicate because there are some duplications in the two segment, you can say that the market is growing roughly between 25% and 30% on a yearly basis.

[Operator:]

Our next question comes from Allen Klee with Maxim Group. Please proceed.

[Allen Klee:]

Good afternoon. For the rest of world segment, what were the factors behind the year-over-year increase?

[Dario Calogero:]

Mainly, it is new customers, because we have more new customers in new geographies. So the increase is pretty much related to new customers or new rounds for existing customers in new geographies, especially when you work with large digital giants that are global players. Now you start having gone, fortunately basis a selection of new routes and new geographies where they need to serve this.

[Allen Klee:]

Okay, great. And then for India, India you did quite well. I think your revenues were up like 32%. And you mentioned ecommerce and voice, but your guidance for the year? I mean, what we're seeing from the outside seems to be that things are likely to get worse there rather than stable in at least next quarter or so. What are you assuming in your guidance? Are you assuming that India is going to be under some pressure?

[Giacomo Dall'Aglio:]

We are conservative in the guidance for Q2, because of the situation in India starting from April, and in May, is going a little worse than expected on the pandemic. So, we will see abroad, of course, because our guidance is 30% above Q2 last year, but we are conservative on India.

[Allen Klee:]

Great. I’m glad that mGage transaction seems like it's going to be very transformative to your company. And so I just want to confirm my understanding that there's a shareholder vote, but the likelihood that this goes through seems to me quite high. Could you explain kind of the dynamics of that?

[Dario Calogero:]

Well, the dynamics is in the filing first thing, if you look at the SBA recently but it's very simple there will be a special meeting on May the 27th where the shareholders will be called to vote and in the merger agreement already the existing shareholders on the buy side, on the Kaleyra side, as agreed to vote towards an approval. So we already know that we have X percent of the existing shareholders of Kaleyra voting in favor and again this is in the filings. So I'm not saying anything, which is not in the public domain. So we expect this special meeting to go smoothly, it should be very easy. So it kind of -- because basically we are issuing 10 million new shares. So these issuing is exceeding the threshold of 20%. So we have to go through the special meeting under the current regulations.

[Giacomo Dall'Aglio:]

And the closing is expected to be after the approval of the special meeting on June 1 to that.

[Allen Klee:]

Okay, great. I mean, the mGage is roughly around the same size and sales as you not exactly but significantly more profitable even before any potential synergies. So it seems like this has the potential to be nicely a very accretive type of deal.

[Dario Calogero:]

Indeed, it is financially, it's definitely very accretive. Strategically also, it's very accretive. Zero overlapping customers, almost zero overlapping geographies. But India where we basically doubled the revenues, which is good because we become more relevant. And this will potentially lead to significant savings in the sourcing of the termination with the mobile network operators and a lot of cross selling opportunities. Because Kaleyra is an omni-channel platform. mGage is pretty much focusing on messaging on the two core technologies, which is the original SMS and this evolution into RCS. So we are looking very much forward towards working together with the team at mGage to explore the opportunities. But yes, this is a very accretive combination. And also they enjoy a better profitability because of the geography that they serve, because they have the U.S. and the U.S. is basically the highest gross margin messaging market in the world.

[Allen Klee:]

Fantastic. Congratulations. Thank you.

[Dario Calogero:]

Thank you, Allen. Thank you for your question and your continued support.

[Operator:]

Thank you. At this time, I would like to turn the call back over to management for closing comments.

[Dario Calogero:]

Thank you very much. So thank you, ladies and gentlemen, for staying with us during this call, and looking very much forward to talking to you again next time. Thank you very much.

[Operator:]

Thank you, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.

[Dario Calogero:]

Bye-bye.