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08/11/2020

Sinqia (SQIA3) releases its 2Q20 results

Sinqia announces today its consolidated results for the second quarter 2020 (“2Q20”).

 

Financial highlights:

Net revenues. Record of R$ 49.6 million (+17.5% vs. 2Q19), an increase due to the organic (+15.1% vs. 2Q19) and inorganic growth (+2.4% vs. 2Q19);

Net revenues from Software. Record of R$ 34.5 million (+18.0% vs. 2Q19), an increase due to the organic (+14.5% vs. 2Q19) and inorganic growth (+3.5% vs. 2Q19);

Recurring revenues. Record of R$ 43.5 million (+23.2% vs. 2Q19), representing 87.8% of the total net revenues – the highest percentage in Sinqia’s history;

Gross profit. Registered R$ 16.8 million (+35.3% vs. 2Q19), an increase due to the growth in revenues and improvement in profitability (+4.4 p.p. vs. 2Q19);

Adjusted EBITDA. Record of R$ 7.4 million (+44.8% vs. 2Q19), a combination of higher revenues, increase in gross margin and a decrease in general and administrative expenses as a proportion of revenues;

Adjusted cash earnings. Reached R$ 2.7 million compared to R$ 8 thousand in the same quarter last year.

 

MESSAGE FROM MANAGEMENT

We have always been confident in Sinqia’s resilience and adaptability. At the end of the first quarter, we received with caution the announcement that the new coronavirus (COVID-19) had entered Brazil: it was the beginning of an unprecedented crisis. We had adapted, and today we share with pleasure an excellent news: Sinqia is overcoming this challenge!

We initiated by helping our employees to take care of their health and adapt to remote work: we expanded our “Move to Flex” program and almost everyone began to work from home. We provided technology infrastructure and implement management procedures consistent with the new reality. The result could not have been better: we maintained high productivity levels, recorded higher satisfaction levels and lower turnover. We have maintained our commitment to face the crisis without reducing salaries and job positions.

We continued helping our customers to adapt to the new reality. In the Software business, we used that moment to substantially increase the deliveries, reducing the backlog of service, implementation and development. In the Services business, we have launched new offers to support the digital transformation of our customers, with strong commercial appeal. This digital transformation process will soon segment winners and losers in the financial sector, and Sinqia will be at the side of its customers to make them the winners.

We have maintained high investments in R&D, facing the crisis as a period to differentiate from competitors with financial restrictions. And we have made progress in product development for instant payments, PIX: the launch of SQ PSI and SQ PSTI is scheduled. We foresee two opportunities: in short term, the sale of these suites in our client portfolio; and, mainly, in medium term, the sale of other existing suites, such as SQ Checking Account, SQ Credit and SQ Investments, for institutions that are entering the financial sector through the payments’ vertical, and will probably expand their product offer, requiring our software.

We have expanded our investments in innovation, facing the crisis as a moment to foresee new possibilities. At Torq, we launched Plugi, the first trading platform for cancelled consortium quotas in Brazil. The consortium structure has historically faced a challenge: the cancelled quotas represent about R$ 50 billion per year, more than 50% of the total quotas. Plugi connects consortium administrators interested in adequate their groups with resource managers interested in acquiring these quotas with discount. An winner model: our customers win, and so their customers. The cloud platform will be connected by APIs and monetized through a take rate over the traded value. Investments in RD&I were R$ 1.5 million in the quarter, a 25.9% increase over the same quarter last year.

We initiated our investments in the open innovation model: in March, we announced our entry into Darwin Startups, an accelerator focused on discovering and assisting domestic startups, with a focus on opportunities that comprise Sinqia’s business such as fintechs and insurtechs. And in 2Q19, we joined Batch #8, a round in which several interesting opportunities were selected, some with huge synergy potential with Sinqia.

And we have increased the scope of our investments in M&A. We have developed the opportunities in the line of “mature companies”, aiming to expand the range of products and the client portfolio, focusing on the banks, financial institutions, funds, pension funds, consortiums and insurance. We have designed an “emerging companies” pipeline, aiming to access new technologies, focusing on bank-as-a-service, open-banking, white-label-banking, artificial intelligence, integration platforms, and digital transformation. And we have created a CVC (Corporate Venture Capital) initiative, which will enable us to pursue co-investment opportunities in businesses that connect with the future of financial services.

Also regarding M&A investments, we have another highlight. In August, we signed the acquisition of ISP (Itaú Soluções Previdenciárias), our first transaction with capital raised in the follow on: an acquisition aligned perfectly with the strategic objectives and financial guidelines of our consolidation plan. The operation adds up to R$ 82.0 million, in which 41% paid in cash at the closing date and 59% paid on installments, that is, it contributes significantly to Sinqia’s growth, while preserving our cash for other opportunities.

In 2Q20, our contract portfolio continued to expand. It reached R$ 150.4 million, up 2.4% over 1Q20 and up 9.5% over 2Q19. The continued growth during the crisis was made possible by a combination of (i) solid business performance, due to the March-April freezing period; and (ii) low churn, due to a perfect alignment between quality of the client portfolio (financial institutions), product portfolio stickiness (software and mission-critical services), and solid business model (subscription).

We ended the quarter as the greatest in 24 years of existence. In 2Q20, we continued adding new products and new clients to the portfolio; we maintained churn under control; we delivered new records, with net revenues of R$ 49.6 million, a 17.5% growth over 2Q19; recurring revenues reached R$ 43.5 million, a 23.2% growth in the same period and with a percentage of recurrence rising to 87.8%, the highest ever recorded.

We maintained our discipline in expenses management. Costs reached R$ 32.8 million, up 10.1% over 2Q19, and gross profit reached R$ 16.8 million, up 35.3% over 2Q19. General and administrative expenses were R$ 9.4 million, up 4.4% over 2Q19, and represented only 19.1% of net revenues, the lowest percentage in the company’s history. This reduction was due to a decrease in turnover, renegotiation of contracts with suppliers, and temporary suspensions of expenses with events and travel, among others. Some of these temporary suspensions will be converted into permanent gains from now on.

All this made possible a new adjusted EBITDA record of R$ 7.4 million, up 44.8% over 2Q19, with adjusted EBITDA margin of 14.9% up 2.8 p.p. As we anticipated last quarter, the beginning of 2020 was the turning point, and we expect that from 2Q20 onwards the entry of new subscription revenues and the restraint/ reduction in implementation costs will be reflected in progressive profitability gains.

It is also important to highlight that our balance sheet remains solid: we ended with gross cash of R$ 336.3 million (vs. R$ 340.9 million in 1Q20), maintaining the same level after a reduction in indebtedness of R$ 18.7 million in the quarter. This is because, in addition to the good results, we did not face any impact due to delinquency: accounts receivables decreased by R$ 6.5 million in the quarter.

Without underestimating the continuous challenges that the pandemic represents for companies and families, we ended this quarter pleased with the results achieved. In this difficult scenario, our business remained practically unaltered and we were able to confirm that Sinqia is a unique company that combines growth and resilience. We have overcome the challenge, and we are prepared to deliver increasing results.

 

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