Technology and innovation are in our DNA, which is evidenced by several initiatives, including the creation of the electronic notification system and our pioneering work in service management through Cadastro Positivo and its use in creating innovative analytical solutions. We will continue to focus on developing distinguished services that deliver more value to our clients, and will thus become increasingly flexible to meet specific demands and be strategically positioned to reach new clients and sectors of the economy. We believe a significant growth opportunity exists in the sectors of financial services, especially fintechs, e-commerce, insurance, telecommunications and the industry in general.
As a result of the growing level of digitalization in our society, we have prioritized creating and serving customers more efficiently, which is directly related to the digitalization process of culture and business processes. Using the “Boa Vista Beyond” concept, through cloud computing, we aim to migrate informational assets from the physical to the digital environment, to reduce process time, increase productivity and gain competitiveness in the data analysis market.

In this context, we believe that the digitization of the organizational culture and the adoption of the “squads” system (multidisciplinary teams for product development and operational improvements) can be an opportunity for growth in the technology segment, and, for this reason, we are investing time and resources to foster the innovation process.
In June 2020, we had 22 active squads, involving 176 employees, compared to only five squads in November 2019, involving 41 employees.

As the demand for analytics and information services solutions for decision-making increases in different sectors and locations, we will continue to expand the scope and usability of our databases and the databases of our clients, enhancing our tools and technologies to develop innovative solutions that meet our clients’ expectations. For as long as the demands of companies and consumers evolve, we will continue to develop tools that assist them in facing challenges, including services with a significant analytical component, which can add more value to our clients and provide higher margins for us and our clients. Accordingly, our recent investments in data, technology and analyses allow us to provide new services more rapidly and efficiently.

We expect that the changes introduced by Complementary Law No. 166/2019 (which revised the Cadastro Positivo framework) will create new growth opportunities for us, especially the conditions required to accelerate the development of a market for solutions directed at consumers, in which we are one of the references in Brazil. The business of solutions directed to consumers is already significant abroad, accounting for approximately 20% of the revenue of certain leading companies in this sector in the United States and the United Kingdom, according to public data disclosed by such companies, suggesting a significant opportunity for the development of this line of services in Brazil. Accordingly, in December 2019, we offered a simple and free app to consumers that allows them to manage their financial commitments and check their credit score. Consumers may upgrade this app upon payment, gaining access to anti-fraud services, monitoring events and alerts in case of consultations made by third parties, including warnings related to the inclusion of debt records in their name, in addition to other functionalities.

In addition to organic growth, we also intend to take advantage of opportunities brought about by acquisitions of companies that may share with us operational synergies and that are capable of leveraging products, distribution channels and operations. We intend to add solutions and products through acquisitions that are not available in our current portfolio, as well as gain access to a larger database, in the anti-fraud, consumer, analytics, marketing services and collection segments that are less efficient to be grown organically. To this end, we intend to structure an internal team focused on new businesses and acquisitions, which will be responsible for selecting the target companies and executing these transactions.

We are pioneers in the development and dissemination of credit recovery digital services in the Brazilian market. According to our studies, digital services significantly increase clients’ profitability, as their credit recovery efficiency has been 10% higher, on average, compared to traditional mail recovery services, at lower costs for us and our clients, which has encouraged the adoption of these services by many clients. During the six-month period ended June 30, 2020, we experienced an acceleration in the migration to our digital services, in particular with respect of our notification services, as a result of the logistic challenges faced in the context of the COVID-19 pandemic for the mailing of notifications to defaulting clients. For more information see “—Impacts if the COVID-19 pandemic” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Six-month period ended June 30, 2020 compared to six-month period ended June 30, 2019.”
Moreover, we have been encouraging the use of analytical services in conjunction with recovery services, which has shown to increase recovery rates even further.

Our relationship with our clients usually begins with one single service or an entry service and gradually expands to the offer of a complete line of technology solutions on several platforms. We believe that the increased offer of services to our existing clients provides great growth potential for our revenue. This has been continuously evidenced in the telecommunications sector, in which we begin our relationship with clients by offering traditional recovery services. Currently, we are one of the main providers of analytics services to companies in this sector. Another example of the expansion of services includes the offer of our digital credit recovery solution, which allowed us to obtain an important client of the financial segment. This client only used solutions offered by a competitor, but over time, we expanded our relationship with this client by offering our risk analytics and, at the end of 2018, this client contracted our scoring base.

The Northeast and Central-West regions currently account for approximately 25% of the Brazilian GDP, according to IBGE, while clients of these regions accounted for approximately only 3% of our revenue in 2019. We believe a great growth opportunity exists for the offer of our services and solutions to companies and individuals in the Central-West region of Brazil. Accordingly, we intend to increase our direct and indirect commercial presence in this region before expanding to the Northeast region. Supported by the higher efficiency of our digital recovery services, we intend to strengthen our database from these regions and increase the offer of risk analysis products with analytical intelligence in the public services, banking and retail segments.

Our analytics platform provides flexibility in generating high-yield reports, better data correspondence and lower operating costs. Since our beginning as a credit bureau focused on credit risk analysis services, we evolved to offer a range of products and solutions that support commercial and strategic decisions, including market analyses, to efficiently increase revenue. Accordingly, we are positioned as a company that can provide solutions with high added value, increasing, for example, approval rates of new clients and reducing default levels, thus allowing for higher margins compared to our competitors, who only focus on services with a lower degree of complexity and customization. Moreover, we also assist our clients in developing more efficient marketing strategies, focused on clients with higher conversion rates.

We use sophisticated levels of development in data statistics and science to develop advanced algorithms and analytical services in our operating segment, on a highly efficient basis, allowing us to develop and offer specific solutions in an agile and flexible manner. We have an internal team dedicated to the development of analytics solutions which have been significantly growing in recent years. These factors, together, allow us to produce algorithms with increased assertiveness and enhanced conclusions to better meet the needs of our clients.
In recognition of the superior products we deliver to our clients, we have been consistently chosen as the business partner of large Brazilian financial institutions and fintechs, which require services with high added value and flexibility in the production of more complex and customized algorithms, in addition to a high service level. Our clients include long-standing partners, who constantly renew their relationships with us, and more recent partners, allowing us to increase our revenue rapidly during the last few years.

To support our offer of services, we rely on a comprehensive database, built over many years of operations in our markets, at a competitive acquisition cost. Our long history of operations and leadership in the sector has allowed us to build comprehensive and exclusive databases, which are hard to replicate by a new market participant or competitor. Our database differentiates us from other companies that depend on third parties to develop their analytical products, such as FICO, which despite its success in other countries, still has a small presence in Brazil even after being present in the Brazilian market for several years.

We entered into several partnerships to purchase data and information to expand our database at competitive costs. In addition to purchasing data from third parties, we also benefit from the loyalty of our client base, having approximately 21,000 active clients, including financial institutions, fintechs and the main corporate and retail groups in Brazil. We can develop and extract intelligence from many sets of proprietary data of our clients, without necessarily transferring this data to us, by developing tools for consultation on consumer credit, consumption and default. We use analytical intelligence to combine this data with other data on our database. These sets of proprietary data, such as those generated by the use of our risk analytics by our clients, and data provided by clients add further value to the data we have acquired, allowing us to create analytical variables that are difficult to replicate. Hybrid analytical initiatives include our database combined with third-party databases, as in the case of an e-commerce client that provided its transactional base for study. This set of client data, associated with our data and intelligence, provided a new vision of customers and their behaviors. As a result, our client was able to prepare product offers for its customer base in a more assertive manner. This model is replicated when requested by any of our clients.

We believe that the coverage and volume of our database and our ability to continuously expand it through acquisitions and development of proprietary data distinguish us in the market in which we operate.

The costs and investment requirements of our operations are mostly fixed, i.e., related to personnel, purchase of data, data processing and maintenance of equipment and IT structure, among others. As a result, we benefit from high operating scalability, which is evidenced by the increase in our operating margin and growing levels of cash generation over the years. Specifically, from 2017 to 2019, our gross income increased by 48.4%, increasing our gross income margin by 10.1 percentage points to 45.8% in the year ended December 31, 2018 from 35.7% in the year ended December 31, 2017. Income before income tax and social contribution increased 384.0% (to R$113.4 million in the year ended December 31, 2019 from R$23.4 million in the year ended December 31, 2017. Our Adjusted EBITDA Margin amounted to 43.1% in the year ended December 31, 2019, a 10.8 percentage point increase compared with the 32.3% registered in the year ended December 31, 2017. As a result of this operational leverage, we believe the continued growth of our revenue will result in incremental growth in our Adjusted EBITDA Margin as we believe that the maintenance of our current configuration will allow us to increase our growth with flexibility, without the need for significant additional investments.

Our leadership team has a history of strong performance and significant experience in the markets in which we operate, with an average of more than 20 years of experience in our sector and an average of eight years of work with us.

This team supervised our growth, promoting changes to achieve a leaner cost structure and developing several innovative solutions, including the electronic notification system to replace the printed mail notification system, delivering better credit recovery results to our clients at a significantly lower cost. Our executive team has also demonstrated its entrepreneurship and innovation on other occasions, including the development of services directed at consumers, which is already established in several countries.

More generally, our team has in-depth knowledge of the data and analytics sector and experience in the different sectors in which we operate. This allows us to find innovative ways to work with available databases and produce more efficient models that are more significant to our clients. Our team is supervised by a highly experienced board of directors, gathering shareholders’ representatives who have significant experience in retail and consumer service, data analysis services and financial and operating management, focused on the creation of value to shareholders, including: (i) ACSP, which is our founding member and has a fundamental role in coordinating the network of trade associations in the main states of Brazil, and which provides us with competitive advantages both in commercial terms and in the generation of proprietary data, as it allows the gathering of data on its members (small retail and industry) for our databases; (ii) TMG Capital, which developed and led the implementation of our strategy to take us to the present moment.