• Consolidated Net Revenue Growth: Increased from 17% in Q1 to 20% in Q2 year-on-year.

• Adjusted EBITDA: BRL296 million, a 15% increase compared to Q2 2023.

• EBITDA Margin: 22.2%, a 100 basis points increase compared to Q2 2023.

• Recurring Revenue: Surpassed BRL1 billion, with SaaS and cloud contributing significantly.

• SaaS Revenue: BRL496 million, with annual growth accelerating from 27% in Q1 to 33% in Q2.

• ARR Management: Surpassed BRL47 billion with an organic net addition of BRL149 million.

• Adjusted EBITDA Margin for Management: 24.9%, a 90 basis points drop year-on-year.

• Business Performance Net Revenue Growth: 39% year-on-year and 52% quarter-on-quarter.

• Techfin Net Revenue: BRL70 million, 11% above Q1 2024 and 47% above Q2 2023.

• Interest on Equity Payment: BRL137 million approved.

• Warning! GuruFocus has detected 2 Warning Sign with TTVSY.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Totvs SA (TTVSY) reported a 20% year-on-year increase in consolidated net revenue for Q2 2024, up from 17% in Q1.

• The SaaS and cloud segments showed strong performance, with SaaS revenue growing by 33% year-on-year.

• Adjusted EBITDA for the quarter was BRL296 million, a 15% increase compared to Q2 2023, with an EBITDA margin of 22.2%.

• The company achieved significant advancements in AI, which are already being implemented in their operations.

• Totvs SA (TTVSY) issued debentures totaling BRL1.5 billion to lengthen the gross debt profile, demonstrating strong financial management.

Negative Points

• The adjusted EBITDA margin saw a year-on-year reduction of 90 basis points, primarily due to inflation impacts on personnel costs and expenses.

• Recent acquisitions have profitability below the company average, affecting overall margins.

• There was a 170 basis point drop in adjusted EBITDA margin quarter-on-quarter, attributed to seasonal declines and higher investments.

• The gross margin faced pressure year-over-year, indicating potential cost management challenges.

• The company faces risks and uncertainties related to general economic conditions and industry factors that could impact future performance.

Q & A Highlights

Q: Can you provide an update on the integration process of recent acquisitions and any synergies realized? A: Dennis Herszkowicz, CEO: We are on the right path with the integration of recent acquisitions, particularly those that align with our existing dimensions. This familiarity accelerates synergy realization, especially in cost and revenue. We expect to see gains this year. Regarding R&D expenses, we have achieved some dilution and plan to maintain this trend as our recurring revenues continue to grow.

Q: Could you elaborate on the ARR dynamics and outlook for the rest of the year and beyond? A: Dennis Herszkowicz, CEO: The ARR dynamics were strong in Q2, driven by cross-selling and new accounts. We have a robust pipeline, providing reasonable visibility for continued growth. The IGP-M index turning positive will further enhance ARR growth. We are confident in maintaining good ARR additions in upcoming quarters.

Q: What factors contributed to the expedited credit origination in techfin, and can this growth be sustained? A: Dennis Herszkowicz, CEO: The positive surprise in techfin results is due to new products and improved integration, leading to cost synergies. We have adjusted our OpEx guidance, indicating better profitability. The dynamics are more normalized this year, and we expect stronger performance in H2 due to seasonal factors.

Q: How should we view the gross margin pressure, and is it more important to focus on EBITDA? A: Gilsomar Maia Sebastiao, CFO: Gross margin is important but should be viewed long-term, especially after recent acquisitions. The margin pressure is partly due to inflation mismatch. As we integrate acquisitions and enhance recurring sales, margins should stabilize. EBITDA remains a key focus for overall performance.

Q: Can you update us on cross-selling initiatives between business performance and management? A: Dennis Herszkowicz, CEO: Cross-selling is progressing well, especially within management and business performance dimensions. There's significant interest in business performance products from management customers. This dynamic is expected to consolidate and grow in the coming months and quarters.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.