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11/10/2020

Sinqia (SQIA3) releases its 3Q20 results

Sinqia announces today its consolidated results for the third quarter 2020 (“3Q20”)

 

Financial highlights:

Net revenues. New record of R$ 52.8 million (+13.8% vs. 3Q19), increase due to the organic (+11.7% vs. 3Q19) and inorganic growth (+2.1% vs. 3Q19);

Net revenues from Software. Reached R$ 35.6 million (+6.5% vs. 3Q19), increase due to the organic (+3.7% vs. 3Q19) and inorganic growth (+2.8% vs. 3Q19);

Net revenues from Services. Registered R$ 17.1 million (+32.7% vs. 3Q19), an increase due to the launch of new offers for digital transformation;

Recurring revenues. New record of R$ 46.9 million (+23.1% vs. 3Q19), representing 88.9% of the total net revenues, the highest company’s percentage;

Gross profit. Reached R$ 17.5 million (+11.0% vs. 3Q19), with growth in Software and Services;

General and administrative expenses. Registered R$ 8.6 million (-12.5% vs. 3Q19), representing 16.1% of the total net revenues, the lowest company’s percentage;

Adjusted EBITDA. Record of R$ 8.8 million (+46.3% vs. 3Q19), a mix of higher gross profit and lower general and administrative expenses.

 

MESSAGE FROM THE MANAGEMENT

 

At the end of 2Q20, we had already overcome the most severe phase of challenges related to the new coronavirus (COVID-19) with the prospect to deliver increasing results. We are pleased to report today the 3Q20 results with new financial records and several new features.

Once again, we received our Great Place to Work certification. This certification, already important for Sinqia, has a special meaning nowadays: in 2020 we reached a score 15% higher than in 2019, at a time when remote work made managing people even more challenging. The climate and turnover rates remained at favorable levels, proving that Sinqia remains an excellent company to work.

We are again at IDC Fintech Rankings. This study, which includes a ranking of the top global technology providers for financial institutions, is one of the industry’s top global benchmarks. We remained in 93rd position, having shown a substantial growth in revenues denominated in BRL in the period under analysis (2019 vs. 2018). And we are the only Brazilian software provider, being recognized Sinqia’s leadership in the country.

And we entered the ISG Provider Lens for the first time. This report, which compares service providers based on ISG’s independent assessment, is an important reference for technology buyers in Brazil and worldwide. In 2020, we were included in three of the research quadrants: Digital Product Lifecycle Services (in the leading quadrant), Digital Customer Experience Services (in the product challenger quadrant) and Digital Business Consulting Services (in the product challenger quadrant), with the growing importance of company for the financial technology market.

Our Pix solution continues to gain traction. According to Bacen, there are already 762 participants able to go into production. Initially we focused on developing software for direct participants, and in 3Q20 we extended the scope to indirect ones, which are the majority. The sales opportunities for the new solution are growing, but we continue to believe that the greatest potential for Sinqia will arise in a second wave, when Pix participants seek an extension of their offer of financial products, demanding new software such as, for example, current account, credit, investments, among others. And it’s not just potential, we already have the first case of this thesis.

We continued to invest in the open innovation model: in 2Q20, we participated in Batch #8, bringing extremely interesting and adherent companies such as Cashway (BaaS), Data Rudder (IA), iBotz (RPA) and Openbox.ai (IA). Understanding that this is a winning strategy in the long term, we participated in Batch # 9 in 3Q20, a new round of opportunity selection. We are increasingly connected to the innovation ecosystem in the financial segment, and we believe that many of the opportunities selected may become Sinqia’s acquisition-targets when reaching maturity.

We made further progress in M&A investments with another new feature: In October we announced Tree Solution’s acquisition. This acquisition inserts Sinqia in the foreign exchange segment at a very opportune moment. The foreign exchange market today comprises institutions in need of a robust supplier that offers an updated solution: Sinqia’s acquisition of Tree eliminates this need. And the foreign exchange market in the future is expected to expand significantly, following the example of the payments market, due to Bacen’s regulatory agenda (according to PL 5.387/19) aiming at its modernization.

It is worth mentioning that the last two acquisitions, ISP and Tree Solution, total investments of R$ 99.5 million (including earnouts), representing 27.4% of the funds raised in the follow on, in line with the expectation of speed in the use of resources. After a start to the year hampered by the uncertainties caused by the pandemic, we accelerated again in 3Q20, and since then we have already announced these two acquisitions. There are several opportunities at an advanced stage of negotiation, with the possibility of maturing in 4Q20 and 1Q21.

Regarding the quarter’s results, in 3Q20 our portfolio of recurring contracts of software continued to expand and totaled R$ 152.4 million, up by 1.3% over 2Q20 and 8.6% over 3Q19. This expansion is anchored in the verticals of Banks (72.2% of the total) and Funds (22.0% of the total). It is great to know that Pix has already been contributing to the expansion, as one of the biggest sales of the period was made to a customer (one of the largest acquirers in Brazil) who also gathered the complete banking suite.

We posted a record net revenues of R$ 52.8 million, up by 13.8% over 3Q19, with a slight 6.5% growth in Software and a sharp 32.4% growth in Services, due to the excellent performance of new offers to support the digital transformation of our customers, who continue to show consistent demand. And we posted a record recurring revenues of R$ 46.9 million, up by 23.1%, representing 88.9% of the net revenues, the highest company’s percentage.

We posted costs of R$ 35.3 million, up by 15.2% over 3Q19, slightly above revenues growth. This is because, in Software, we continue to support high costs with Implementation to allow sales to flow from previous quarters and significantly expanded the R&D team to unify the pension software from past acquisitions (attps, Atena, ADSPrev and Stock & Info), with the goal to achieve significant operational synergies for this business in the medium- and long-term.

And we reached G&A expenses of R$ 8.6 million, down by 12.5% over 3Q19. These expenses represented 16.4% of the net revenues, the lowest company’s percentage. This reduction reflects the many efforts to contain expenses during the uncertainty in the first two quarters of the year, in addition to reversal of provision for legal contingencies. Now, this reverts to an important contribution to the company’s profitability gain.

This made it possible to reach a new record in adjusted EBITDA, at R$ 8.8 million, up by 46.3% over 3Q19, with an adjusted EBITDA margin of 16.7%, up by 3.7 percentage points. We are pursuing consistent increases in profitability, optimizing the organic business and selecting acquisitions with higher margins, in order to build a higher EBITDA margin baseline in the short term.

It should be noted that we closed 3Q20 with a gross cash of R$ 339.7 million (vs. R$ 336.3 million in 2Q20), a slight increase of R$ 3.4 million even after a decrease in debt of R$ 4.6 million. And we are still not impacted by default: the balance of receivables decreased further in the quarter.

After three of the four quarters, we have an increasingly clear and positive view on our company’s prospects for 2020. There is still a lot to accomplish this year, a lot of new features to come. We remain focused on implementing our consolidation and innovation plan, and delivering increasing results.

 

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