The second quarter of 2019 was, in several aspects, an extraordinary period!
In organic terms, we recorded significant Software sales and conquered one of the most important agreements of platform Sinqia Banks over the past years. Such achievement is special due to the return of a client with which we discontinued our relationship after the sale of such client’s operations in Brazil in 2015; however now, upon resumption of its operations in Brazil, such client opted for Sinqia again, which confirms the importance of our position as the sole Brazilian provider of a full banking offer.
In inorganic terms, we announced the second largest acquisition in our history: Softpar, one of the main software providers to banks, non-bank financial institutions and development agencies. In Sinqia Banks platform, Softpar added SQ Leasing, SQ Risks and SQ GED suites, and complements the consolidated SQ Credit, SQ Financial Control and SQ Regulatory suites, increasing the comprehensiveness of our offer.
In addition, we advanced significantly in the integration of three companies acquired this year: Atena, ADSPrev and Softpar. We have basically undertaken all necessary measures to perform the mapped synergies, including the closing of offices of Atena (Osasco/SP branch) and ADSPrev (Belo Horizonte/MG branch), and the partial reduction of the overhead, measures that resulted in extraordinary items in the quarter. The trend, from now on, is that these operations generate increasing results.
The portfolio of recurring software contracts represented the record of R$ 137.3 million, an increase of 67,9% compared to 2Q18 and 21.0% compared to 1Q19. Over the previous quarter, there was an organic addition of R$ 4.8 million and the inorganic addition of R$ 19.1 million from Softpar. The significant additions in this portfolio, both in current and past quarters, have generated significant backlog of implementations, out of which a small portion has already been converted into revenues. Such measures shall sustain the organic growth at a higher level in the next periods.
Net revenues represented a record of R$ 42.2 million, an increase of 23.6% compared to the same period of prior year, an R$ 8.0 million increase. Out of such increase, R$ 1.5 million was organic and R$ 6.5 million was inorganic, arising from the last four acquisitions. Due to the recent acquisition, Softpar’s revenues were consolidated solely in June and, therefore, do not account for a complete quarter.
Gross profit totaled R$ 12.4 million, drop of 2.7% compared to the same period of prior year. Such variation resulted mainly from the decrease in organic gross profit due to the reduction of the organic gross margin in Software business, necessary to convert the implementation backlog in revenues, as we booked significant development and implementation costs managerially determined as R$ 3.4 million; and the increase in inorganic gross profit, with margin below expectations, already impacted by extraordinary items, however not by synergies, which shall become more evident in 3Q19. Again, we shall emphasize that the profitability of the acquired companies follows the “J curve” path.
General and administrative (SG&A) expenses totaled R$ 9.0 million, an increase of 16.9% compared to 2Q18, equivalent to R$ 1.3 million. Out of such increase, R$ 0,9 million was organic and R$ 0,4 million was inorganic. It’s worth mentioning that such line was impacted by extraordinary expenses, as most part of synergies are generated from reduction of the SG&A expenses in acquired companies.
Adjusted EBITDA (excluding extraordinary items) totaled R$ 5.1 million, an increase of R$ 2.1 million compared to 2Q18. This number was impacted by the decisions undertaken to speed up the organic and inorganic growth, referred to in prior quarters, mainly additional RD&I investments, changes in commercial model and additional employees to convert the implementation backlog in revenues. Accordingly, adjusted EBITDA margin decreased to 12.1% compared to 14.6% in 2Q18.
We are confident that our way ahead is the best possible and Sinqia is prepared for a new increase in revenues and margins!