Text S.A. (TXT) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Text's Earnings Conference Call to discuss the 2023 Annual as well as April to June '24, '25, results. [Operator Instructions] The format of the call today will be a presentation by the Investor Relations team, followed by a question-and-answer session. So without further ado, I would now like to pass the line to Lucja Kaseja. Please go ahead.

Good afternoon, everyone. Thank you for joining us today for our webinar. I am pleased to present our financial results for the fiscal year first, then I will be presenting key performance indicators for Q1 of the new financial year. And then later on, I will shed some light on additional information on products in our company. [Operator Instructions] For the financial results, our total revenue for the year was PLN 335.3 million, reflecting a 13.4% growth when adjusted for changes in our revenue recognition policy during the year. Then the EBITDA reached PLN 198.5 million, and that is a year-over-year increase of 9.2%. You can also see here that the net operating profit was PLN 179 million, which is an increase by 7.1%. And that led us to net profit, which stood at a very round number of PLN 166.6 million, which is more than PLN 10 million higher than the adjusted profit for the previous year. This data, we present them -- we compare them to the revised numbers for the previous year because as you are aware, we have changed within the year the revenue recognition policy. And that is we now attribute the revenues exactly to the periods for which they are paid for. When it comes to the fourth quarter, we recorded a revenue of PLN 83.3 million, and that is minus 1.4% as compared to revised Q4 of 2022, '23. This was negatively affected by PLN 3 million of deferred revenue. This number actually fluctuates quite significantly between the quarters. However, if you think about the annual net effect of those fluctuations in 2023, '24, it was actually PLN 3.8 million. Our EBITDA for Q4 was PLN 46 million, and EBIT, as you can see, PLN 40.9 million, which is minus 15.7% as compared with the quarter year ago. Actually, this is the effect of higher costs that we incurred during Q4 and this is due to at least 3 reasons. So first of all, this quarter, we had much higher payouts to the partners in the Partner Program. As part of the revenue sharing, this number for the quarter was the highest in the whole of 2023, '24. And actually, it was 35% higher than a year ago and almost 50% higher than in the previous quarter. So it actually adds almost PLN 2 million to the cost of the quarter. Then we also had a higher cost of infrastructure and servers. That is an additional PLN 1 million cost and this is actually because we are investing in our infrastructure, and this change actually will stay with us into the next quarters as well. And the last thing that was more of a one-off cost in that quarter was the recognition of the bonus that will be paid out to the management board next quarter, but because we already know the value of it, it was recognized this quarter. So that means that actually, in the quarter, we have both recognized a paid-out bonus once and then also the one that will be paid in the next quarter. All that brings us to net profit of PLN 38 million. And now I will go into the future revenues. So actually, with the change of the revenue recognition policy, we now show the annual subscriptions divided per particular month. So only a part of the paid annual subscription is recognized per quarter. And what is over the period reported, we recognize that as revenues of the future periods. And actually, this number increases, both if you think of the numbers in U.S. dollars and also in Polish zloty. However, the change, recalculation of these numbers at the end of the quarter actually create a noncash revenue that is translated into a profit and loss account and causes fluctuations to revenues on our side. Then it is nice to show again and again that the earnings per share are growing. So we have earnings per share of PLN 6.63 per share. And again, here, we compare this number with the revised adjusted numbers for 2022, '23 to provide the actual comparison. When we talk about revenues and the whole annual data, it is nice to have a look at the revenues by geography. There are important things that can be seen in this market -- on this graph. First of all, the most important market for us is the United States which is now generating 31% of the revenues. Then we have also other English-speaking countries, U.K., Australia, Canada, and those markets -- the U.S. market is actually our focus. So when we create the products, when we think of additions to the product, we talk with our American customers. But also, we have customers from other places. And for the first time, you can see an Asian country, which has a share in revenues over 5%, which is Indonesia. And this is something that has been growing for a good few quarters now. So Asia is slightly over 25% of our revenues. However, there are important distinctions between the users, our target American clients and also the Asian clients. So the U.S. clients on whom we want to focus are much more loyal, and they stay much longer with us, whereas the Asian countries, the customers from this region they are actually much quicker also in terms of communication. So the messages they share, the way they interact are very quick messages, but a lot of them. So in our case, it means that the server usage, for example, for this type of the customers is higher. And then Poland, where we are based is actually now quite stable, 1.4% in the revenues, but it's quite surprisingly, only top 15 countries, whereas a year ago, it was top 10. We continue to generate good cash, and we managed to generate PLN 84.8 million of cash at the end of the period whereas among the financial activities that require paying out the cash are the dividends both the annual dividend and also interim dividends that we pay out throughout the year. Together with the annual results, we and the company, but more importantly, the Management Board decided to propose and this proposal was accepted by the Supervisory Board to pay out PLN 5.98 per share as a dividend. And it means that we will be paying out PLN 153.9 million out of our profit in form of a dividend. Of course, that has to be approved by the Annual General Meeting. Now we go more into a division between the products in terms of the revenue. So the LiveChat product is still the most important one for us in terms of the revenues. It has shown good growth in terms of the annual growth which was 22%. Not so much of the last quarter, which was just 8% increase. And the other 2 products, ChatBot and HelpDesk are enjoying much higher growth rates. And year-on-year, they become more important, which you can see on the next slide, where we present the revenue split of the products. So LiveChat still dominates 91.1% of the revenues. But ChatBot has 6.5% and HelpDesk is each quarter, it is adding revenues currently PLN 2.1 million. And as the products have the knowledge base and HelpDesk will be together in the future that is already 2.4% together. As a little summary of this section, the most important things are in terms of the annual results, the total revenue, which was PLN 335.3 million, that was a growth of 13.4%. Of course, adjusting for the revenue recognition policy changes. EBITDA and net operating profit enjoyed 1-digit growth respectively 9.2% in terms of EBITDA and 7.2% in terms of net operating profit, and that led us to a net profit of PLN 166.6 million for the entire year. The margins, although they are still at the very high levels, well above 50%. They were impacted by the higher cost and also by the change in the revenue recognition policy this year. Q4, we finished with PLN 83.3 million in terms of the revenues, but that was negatively affected by this revaluation of deferred revenues. If we didn't have that, the revenues for the period would have been higher. And with the EBITDA and EBIT numbers in the quarter were affected by higher costs of the success fees paid to Partner Program then a higher cost of external services that is mainly service and infrastructure and also a provision for the bonus of the Management Board. Having said that, now we fast forward to the current quarter. So we almost about 3 days ago, we finished our Q1. And we can also now discuss more recent data which I think is something that is of interest to everyone even more than the annual results than the financial results. So first of all, we start with MRR for all of the products. In June -- at the end of June 2024, that was USD 7.07 million, which is an increase both in terms of the quarter and year-on-year increase. It was the result of the changes in the product. And we enjoyed the growth of MRR. Also, in terms of the payments received. This quarter was a very, very -- I can even say a record quarter for the payments. As we -- at the company's level, we had USD 22.62 million paid in the quarter. And now we can discuss exactly the KPIs. So what is actually behind the numbers, both MRR and cash flows? So I will discuss the number of customers and ARPU per each product. First of all, we start with LiveChat. LiveChat, we ended the quarter with 37,523 LiveChat clients. And if you compare it to the last quarter, it's actually a negative of 321 clients, partly because of the churn that we have within the product, but also it is a result of our own change in the definition of the customer. So we deducted almost 200 customer -- 200 clients from the number of customers. And that is because we changed the definition. So previously, it was just for the customers who are paying for the product, but we added also a condition that they have to have an active access to the application. So what it means is that it, for example, excludes the customers who were on annual subscriptions, but already stopped using the product. Within the quarter, we also very actively optimized price list. So some of the customers were moved from the remaining customers from pay per seat to pay per agent model, and that added to increased churn. So not only the tough market that we see for small- and medium-sized customers, but also small and medium-sized companies, but also this added -- this was an additional factor for the churn in the product. If you look at ARPU and initial ARPU of LiveChat, you can see that quite a lot of things happened within the quarter. First of all, you can see that right at the beginning of 2024, we started those price optimizations and we continue them throughout the year. So in the last quarter, this translated into increase of ARPU to USD 170.1 million, actually U.S. dollars, not Polish zloty as on the presentation, at the end of June. The major change was done in May. So you can see that the numbers for June are already much flatter. And also, one thing that has changed and quite important one is that we added to One AI+ paid features for the new customers starting in June. So it is another factor that improves ARPU of LiveChat. Then we have our second product, ChatBot, from the graph, you can see that the number of customers of ChatBot is actually flat. So if you compare the numbers, it's plus 2 customers quarter-on-quarter. However, again, here, we changed the definition of the paying customer. And by mistake, we added -- we have been adding nonprofit organizations to the ChatBot numbers. And we excluded 70 of those between March and April. So actually, when you look at these numbers, June is the third consecutive month of growth of new customers for ChatBot, which is a -- for us, a positive sign for ChatBot. Also, you can see that ChatBot ARPU increased as well. So partly that is because of excluding those customers that were not supposed to be there. But even if you take -- if you exclude that effect, ChatBot ARPU has increased. And at the end of the quarter, it is USD 146.2. We also added here a new slide that explains quite a bit about ChatBot and the way we get the revenues from ChatBot because Part of that is subscription which is taken into account when we calculate monthly recurring revenues. But also, there is additional parts, so additional chats that are paid by the customers once they exceed the number of chats that they have within the subscription plans. And we have -- we do not include this additional chat in MRR of ChatBot and not even in ARPU. But here on this graph, you see that if we were to add those additional payments for interactions to normal ARPU, the combined number for ChatBot would be USD 198.6 at the end of June 2024. So this component of additional chats actually increases quite a lot, also because of the fact that we have changed the pricing starting in March. For existing customers, the price for additional chats is USD 0.01 per additional chat, which is above the plan. And for the customers that started to be our customers in March, that cost is USD 0.03 per chat. And the last product that I will discuss in this section is HelpDesk. And actually, we added 32 customers net in the quarter. So at the end of June, it is almost 1,200 paying customers for HelpDesk product. In the following quarters, we will be combining the product with knowledge base and so there will be a combined offer of those. But how this actually is enjoying a very good growth, partly because it is introduced into new channels of acquisition of customers. So for example, we added workflow within the quarter. There is a plan to add Shopify integration by the end of the next quarter. And also, we are able to gain much higher in terms of the size customers. And you can see that on the ARPU growth. So both we are able to expand within the existing customers. And additionally, in June, HelpDesk was -- we added a new subscription plan Business, so a higher plan for HelpDesk, which makes bigger customers to go on a higher plan. So it's another factor that adds up to ARPU. That's the end for the summary of the KPIs. However, I would also like to discuss a little bit about the events that took place in Q1 and so I will discuss a couple of things, mainly about the product. The first one is OpenWidget, which you know already for a good couple of quarters. But we started to gain traction in terms of OpenWidget. So currently, we have over 1,000 customers. It's started to become a source of growth for LiveChat because we started to see the first migrations from OpenWidget, which is a free product, our only -- in such -- organized in such a way. And already full integration between the 2 products. We have some LiveChat paying customers. And then the second thing, we have shown on our website, on text.com, products road map for our -- mainly for our customers to see where we are going with the products and what they can expect in the future. First of all, it very much underlines our focus on automation and on suite of the products. So unification of all the products that we have and the widgets and the way the customer will be navigating within the products. We have set a list of quite ambition goal -- ambitious goals to fulfill and to release the integrations and some features or some changes to the product by September 2024. And this is something which is a living road map. So there will be changes on this website. And it is available publicly. So if you want to have a look, you can use that link. Then the next thing in terms of the product is actually how we started to use to monetize AI. So as you know, we have 2 ways of AI in the product. We have -- in ChatBot, we have our own LLM model which -- on which the ChatBot is based. And then for other products, we have features which are based on OpenAI currently. And we pay the bills for that per usage. Within the last couple of months, we tried to show more the features of AI to the -- to our customers. And currently, at the beginning of June, we also started to monetize it. So now all the customers who start LiveChat they are presented with the features, which are based on AI. And they can buy those features additionally to the subscription in LiveChat. So this will be a way of, first of all, covering the cost for AI usage in the product. We are after -- effectively after 2 weeks of sales, so we already have some customers paying for that. However, because it's just a very short period of time, we do not want to give the numbers because those might change. We need a little bit more traction. However, we can provide you with the numbers for another thing that we launched since Q1 2024, '25, API as a service. We have communicated throughout the first quarter of 2024 to our customers, to developers that our API will become a premium product and the use of the product will be paid -- will have to be paid. If the products are not presented in our marketplace. So for example, if the customers or some third parties create products on top of API, and they put up those end products on our marketplace, the usage of API is for free. However, if they do -- they create a product on top of our API, they will be -- they will have to pay for the usage. And actually, this monetization started in Q1 of the current financial year. And after the first quarter, we estimate that it is -- the revenues that we get from the source are about USD 50,000. And there is quite a potential growth for Text platform into the future. With this slide, I'm going to sum up the latest numbers for Q1. So most importantly, MRR grew by 6.2%, if compared to the previous quarter, that is almost a 10% year-on-year growth. We had a record high value of payments received, which were USD 22.62 million. That's an increase of 12.2% and within the quarter, we were able to give a boost to all ARPU to ARPU of all products. However, still the increased churn undermines LiveChat number of customers. In terms of the product, there is a lot of things happening. In LiveChat, we are still optimizing price list; however, the developments will not be as dynamic as they used to be in the quarter that has finished. They will be continued on a smaller scale into the future. We have a public road map for the product development, including we added effectively new products One AI+, which is a paid feature for new LiveChat users. ChatBot, sorry, OpenWidget is enjoying a growth currently and also is a source for LiveChat customers. And the last but not least, something that's quite a lot of people were waiting for. We started to use API as a service, and that already generated revenues of USD 50,000 in this quarter. And with that slide, I'm going to finish the presentation, which already is quite long, and we will be happy to take your questions. Thank you.

[Operator Instructions] Okay. It looks like we have no questions on the voice line. I'll pass the line to Lucy and Marcin to continue answering the text questions.

So we have some tax questions. Thank you very much. And the first is from private investor, Bern. Do you have the net MRR churn by the individual product LiveChat, ChatBot, HelpDesk?

We do not provide those data individually per product. However, we -- so far, we had been quite consistent in saying that HelpDesk is definitely enjoying retention over 100% with...

MRR churn.

Exactly.

At the same time, I think if you look at HelpDesk, this data is very representative and repetitive. And now if you look at, especially LiveChat, when now -- actually, when you look at that, that the net MRR churn in some months looks great, looks absolutely fantastic. It's a negative territory, but not representative because that's the effect of the optimization we are talking about, so unfortunately it's not something -- not the real picture of that product. So probably, we have to wait when we finish the optimization and then we will see how it will look like, how it's working on that level.

Then we have a series of questions from Ben, another private investor. So I will start reading them one by one. The first one is Text partnering with value-added pre-sellers and system integrators in North America to better target the mid-market clients? If no, what is the strategy to target larger customers versus the current majority SMB base?

Maybe I will take this one. Yes, sure. Yes. That's something we're trying to do. I mean the part of our partner program is solution partner, we have reseller programs. So yes, we're trying to do so. If you know some company we should approach, some possible partner, we are very open to meet. So we'll be happy to invite anyone on that. But yes, we have partners like that and to be really -- would see to expand this program and get more this kind of partners.

Then we have a question. Are there any plans for Text to focus on certain industry verticals? And maybe together with the next one for the HelpDesk product, are there plans to target IT and HR departments or the current strategy is to focus on customer support functions? I'm going to take that one. And actually, our focus is, first of all, on customer support functions in terms of all of the products. In terms of the industry verticals, we have some industries which are much more represented than the others. And those include for example, especially e-commerce, retail, but also we have good representation from financial services, IT services, gaming and gambling as well then health care, but also education. So we -- and on top of that, we also have customers from many other sectors. So currently, we are not doing any targeted marketing on certain industry verticals. However, we provide from time to time, especially with, for example, case studies that we present to the potential customers, we tend to cover some of the industries.

Yes, we have some landing page dedicated to some industries, sometimes we feel lodging some complaints, but probably nothing clearly very extensive, but I think the beauty of the LiveChat, especially like all of our products is that really we have customers from every industry, even some not really intuitive, I would say. But at the same time, we're working on some -- adding some use cases. So for example, one thing we are working on is to make LiveChat more suitable, more effective for marketing purposes, for example. So that would be an example, so maybe not some industry, but I would say, to expand, to add more features, which can be used for example from marketing teams.

Then we have a question on how much is the current revenue for API as a Service, pricing for API as a services usage based and not [indiscernible] based and will not have MRR that's exactly true. So it is per usage, also the -- if you look at the website developers, there is some free amount of usage that you can have. And only if you exceed that, you have to pay for the usage. And the last one, as mentioned in the last quarter, so in Q1 2004, '05 the revenue that we got was slightly above USD 50,000. And the last question from Ben is about Text Labs, so our incubator. Are there any projects currently revenue-generating? So we have 3 projects that are on our marketplace, that they are sold to our -- to Text's customers...

Actually, when you look at the Text.com, tariffs about labs, actually it's more than that. For example, we include insights among this product. So absolutely, this is generating revenue. Sorry for this interruption because I really wanted to mention Insights, which if you look at the website, it's included in the labs but also I'm asking at this momentum, not like some huge thing.

Then we also have another question from Roman Hoffman and individual investor. Can you elaborate a bit further what are the reasons of churn for LiveChat since SaaS businesses need to optimize the MRR churn, tremendous factor in this equation? Thanks.

So a huge topic, of course, a reason of the churn. We definitely are going deep. We're trying to really understand churn, what is happening, why customers are leaving. And we have 2 types of churn really...