Text S.A. (TXT) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to the discussion on Text Q2 2026-2027 KPI conference call. The call today will be hosted by Marcin Droba and Lucja Kaseja from the Investor Relations Department. At the end of the presentation, we'll have an opportunity to ask questions. So without further ado, I would now like to pass the line to Lucja. Please go ahead, ma'am.

Good afternoon, everyone. As always, it's great to meet you and talk about the latest data and developments at the Text group. As usual, we also ask you to take a moment to review the disclaimers related to this presentation. The full presentation together with the recording and transcript will, of course, be available on our website by the end of the day. Today, we will focus mainly on the numbers we published in Friday's current report. First and for most MRR and payments received in Q2 of financial year 2026, '27. And just to avoid any confusion, payments received are not equal revenue for the quarter. But before we go into the numbers, I'd like to spend a few minutes talking about us, our products and our customers. As some of you may remember, monetizing and converting online businesses has always been at the heart of Lucja. This was really the original idea behind the product. Over time, of course, our customers discovered many other use cases where we could help them, and that's fantastic. But this original use case has always remained very important to us. And today, we are putting a lot of focus on it again. One reason is the technology now makes it possible to do more and much more in this area than ever before. And Text particularly powerful here. It brings together in 1 place, key data from customer systems, their e-commerce platforms, multiple communication channels and of course, the capabilities of AI. What we want to show is a couple of examples of our customers. A great example of what can be achieved with Text is Novel an e-commerce company from Finland. Novo sells to furbished computers to customers and businesses in Finland, Sweden and Germany. Customer service has always been very important to them, they have even received awards for it. But in April this year, they came to us with a very specific problem. They wanted to maintain that high level of customer service outside their teams working hours. Initially, the AI agent in tech simply handled website traffic after ours. But ones that became more comfortable with the new tool, they started using campaigns and what we call custom skills. And that had a huge impact on sales generated through chat. In the example, we're showing in front of you, just 4 months later, the AI agent is handling more than 70% of all chats all and sales generated through the AI agent have grown more than fivefold. Harry, is the manager responsible for the project, particularly appreciate the reporting capabilities behind our product. He can see exactly which charts led to sales and measure a wide range of other parameters. Last Thursday, we had an online meeting with Nuvoo for the entire Text team. We showed them some of the new capabilities and what will be soon available in text. And I have to say we used to think that since our rather reserved nation, but this time, they showed some very genuine enthusiasm. And probably, we should not really quote them legally here and another example, we are very proud that we supported the organization of Winter Olympic games with excellent results. You can read more about this in the testimony on our website. We don't want to go into much detail here. But we want to show you -- what we want to show is the scale and prestige of the projects that can be supported with Text. And there is also another important point. Text was selected by some of leading experts in this field. They told us that capabilities of our API are unique, and they are already thinking on how they can use them in future projects. I'd also like to share to more customer stories. Hopefully, we will be able to talk about both of them publicly very soon, for now, however, we are still waiting for formal marketing approval, but both stories have a happy ending. But they also show some of the challenges we still need to address and why our numbers are not yet where we want them to be. The first story is about a customer from Australia. Initially, they told us that they are planning to leave LiveChat. The exact reason was price increase that they got. But they also told us that they were looking for alternatives because they couldn't achieve everything they want to do with LifeGen due to some certain missing functionalities. Then we showed them Text. And it turned out that test could not solve the problem -- sorry, -- it's turned out that tax not only was able to solve the problem they had, but also it could do much more. They were achieving exceptionally strong results with AI agents. And today, after moving from lifechat just to Text, this customer is paying several times more than before, including a significant usage-based component. They have signed a 1-year contract and are very happy with the results. And remember, this whole conversation started because they thought our product was too expensive. And this is a very good example of something we would need to improve. We need to do a much better job of showing the value of Text to customers who simply don't have the time to explore the product themselves. And the second story I want to tell you about is actually about a new customer. This 1 is particularly prestigious for us. you could say this is a customer and industry expert, a technology company with a very good understanding of the market. They looked at several competing solutions. All of them were considered top-tier products, and it shows the 1 they felt was the best. Obviously, we wouldn't be telling you the story if it wasn't Text. And that makes us very happy, but it also highlights our biggest challenge. We believe we have 1 of the best, if not the best products in our category, but we still don't have the level of visibility that this product deserves. And with that, we can now move on to the numbers and look at what we achieved during the quarter which just has ended. Back in our quarterly report for Q1 in August, we said that MRR declined during the first 2 months of the quarter. But it still remained above the level from a year ago. September, finally stopped a downward trend. We ended the month flat. So overall MRR at the end of the quarter, declined by 2.3%, while still growing by 3.3% over the year. This result is directly related to the restocking about a moment ago. Our visibility is still not where we wanted to be. As a result, customer acquisition remains weak, and this is the case despite the positive trend we've seen in customer churn over the last 3 months. Our customer churn rate fell clearly below 45%. This may partly reflect the changing structure of our customer base with much -- with more larger customers. And it also reflects the fact that many customers have moved to annual contracts, something we talked about quite extensively 3 months ago on the call. So while MRR was weaker than we had hoped. We had another strong month in terms of the payments received -- we received USD 23,610,000 for a quarter. This means a growth of 6.2% year-on-year and a decline of 2.4% compared with the previous 3 months. Let's also remember that the previous quarter was the period when grandfathering ended for life customers and many customers decided to move to annual contracts. And let's repeat this once again. Payments. received are not equal to revenue. Just to put this into a context, after Q1, we had a record level of deferred revenue. customer liabilities resulting from contracts that was PLN 77.2 million. That amount will flow into revenue over the coming quarters. Sorry for changing the slide. Another positive point I wanted to mention here is our API business. API revenue headed on the strong quarter and has now exceeded USD 450,000. This is almost double what it was just 3 months ago. It is becoming an increasingly important part of our business. That said, we shouldn't expect this growth to be perfectly linear. And you can now see also text on this chart. For now, it is still very small, but we expect it to grow quickly. I'll come back to that at the end of the presentation. We are also seeing another positive trend that we really wanted to see. The share of customers with ARPL above USD 500 continues to increase. This quarter, they accounted for 56% of our total MRR. In this slide, we are still showing the share of customers paying for more for -- more than 1 of our products. Of course, as these customers migrate to tax, this particular way of looking at our business will eventually become less meaningful. For now, it's worth noting that share -- that the share increased by 5% points year-over-year, reaching 40% at the end of September. And that's it when it comes to the numbers, but let me briefly summarize the quarter and then we'll move to Q&A. Looking at the financials, MRR grew by 3.3% year-over-year, while declining 2.3% compared with the end of the previous quarter. And importantly, September ended flat. If we look at the actual cash coming into the business, it was another strong quarter. Payments received were up 6. 2% Year-over-year. And Apirevenue, which is calculated outside of MRR, almost doubled during the quarter. It was also a quarter of a lot of activity around customer acquisition. We can see the potential, but we still need to wait for the results to fully materialize. It is worth mentioning that during these 3 months alone, our products became available on marketplaces and platforms such as Google Cloud, AWS and CAP. It was also a very intensive quarter when it comes to product development. Amongst the new integrations I particularly mentioned Clave, the world's largest SMS and e-mail marketing platform. All in all, we have released 63 new features and functionalities in text. Many of them are very significant. That number shows how effectively our product and engineering teams work during the quarter. And importantly, we are also working on something else how to communicate the value of text much better. I mentioned this challenge at the beginning of the presentation. The latest data shows that we've made significant progress here. We're happy with the improvement of -- in lead to customer conversion for Text. And that encourages us to the redirect more traffic from our other domains to text.com. This is an experiment and obviously, it comes with some risks. But the conversion results we are seeing give us confidence to continue. The strong results our customers are achieving with tax are also encouraging us to accelerate the migration of customers from our other products to Texx. In September, we moved virtually all starter plant customers from livechat to text. From an MRR perspective, this is neutral. The payments will only start being classified as Text from the following month. But this is just the beginning. The migration process is now accelerating significantly. And that's the summary from us. Of course, we are happy to take the questions. And as always, we encourage you to ask them in the best possible way by texting. Thank you for listening.

Thank you very much for the presentation. Lucja. We'll now be moving to the Q&A part of the call. [Operator Instructions] Our first next question comes from Marcin Nowak, Ipopema Securities. Following the observation about the visibility of the product, how do you want to achieve that? Would Text reconsider rehiring the sales team that was just laid off? What changes can improve this visibility.

thank you, Marcin, for the question. First of all, what we -- the fact that we are showing the cases is 1 of such things. So we need success stories from our clients, and we are displaying them showing the real examples and real numbers for our potential customers to have a look. And this also was got some attention from website or is like from some sector news agencies. So we got some peer around that as well. So this is part of what we're trying to do. We are also like the whole change of the way Text website looks. So this red color and variable statements and especially the fact that we emphasize that we want to put the product on the offense, so on actually driving the sales for our customers, this is something that we are trying to achieve to bring awareness of text to customers.

Let's add that as it was shown in the presentation, we added 3 huge marketplaces in the Q2 alone. So that's not saying that will change the situation overnight. comparable to that needs a lot of time. You need to build your credibility or visibility on each marketplace, but that has a lot work was made during that quarter, even though single quarter. So we need to wait for the effect, but a lot of work was done about sales team about sales team. Now we definitely not consider rehiring the sales team at the moment. But actually, that was something our CEO mentioned after AGM at last AGM that it's not the first time actually he actually cut the sales team. He did it. So 10-plus like maybe 12, 14 years ago, that was good that even then, and we think that's a good decision. Again. But of course, in the future, who knows, maybe we will repeat the story with them.

Okay. Another question from Mr. Marcin Nowak, do you have an estimate how the convergence to anal subscriptions have affected how much it reduced the quarter-on-quarter MRR dynamic?

Well, first of all, you got the direction correctly. So this is something and we've talked about it last quarter, that the increase that affected the life to customers for some of them was somehow limited because they chose annual subscriptions instead of the monthly subscriptions they were previously on and indeed, that make a reduction in the effect of grandfathering on MRR. And -- so all in all, the effect that -- of this price of this end of grandfathering on MRR that we wanted to have was slightly lower than it appeared to be, but we are not giving the numbers, that's right.

Our next question comes from Mr. Du the API payments grow to over $450,000 because customers are using the API more or because of one-off high usage from a few customers.

I would say definitely more customers are using API. But as we mentioned already, -- even if you look at makes single months if you look at the picture from month to month, the growth of that part of our business is definitely not clean. It's changed that is sometimes a month when we see some decrease, and we are seeing huge jump. Taylor sites changing month-to-month, not only growing, but at the same time, even without that, especially bigger customers are buying some huge packages of calls of API calls. So sometimes yes, that touch through it's possible to have some bigger customers will pay in the 1 month package of API calls, which will serve him for like a few months. It can happen. It's happening.

Another question from Darius. -- when customers start using AI features in Text, -- do they usually increase their usage over time? Or does it stay at a similar level.

it's a very valid question. However, we do not have that much data. I mean we just have a limited number of customers who are long enough to make such comparisons. The 1 example I know like exactly about the customer is that they did, in fact, increase the usage over time seeing the results they're getting. And that should probably be the answer for larger customers. Once they see the value, they are not afraid to invest more and pay more -- but for smaller ones, I would say that, that does not necessarily be the case. But again, the statistics that we have are rather limited at this time.