Intouch Insight Ltd. (INX) Earnings Call Transcript & Summary

Greetings, and welcome to the InTouch Insight's Conference. It is now my pleasure to introduce your host, President and CEO.

Thank you, everybody. As stated there, I'm Cameron Watt, President and CEO of InTouch Insight. I'm going to take a few minutes and walk you through the company and how we're doing and talk a little bit about some of the changes that have been going on in this interesting year of 2020 that we're having. First slide, of course, I have to show you is the disclaimer slide, which everyone tells me, I have to show, but we won't spend all the time reading that. Our mission is to create shareholder value by designing, building and delivering solutions that collect data for customers that provide information that improve business outcomes. It's quite the slide, right? So what does it mean? What I would tell people is that when you go to a restaurant, when you go to a convenience store, when you go to a retail store, when you go to a hotel, you experience customer experience. You have an experience there. You feel a certain way. Our job as a company is to make it so that when you go out in the world and have those experiences that they're better, every time you go out there. And that they're consistent when you go to the same brand, across the country. Effectively, we are in charge of making sure that people have a good customer experience out there. And by helping our customers deliver that good customer experience and by improving that customer experience, that's how we improve their business out. From a capital structure standpoint, we hover around $0.40 in share price. We're 22.5 million shares outstanding with about 33% insider ownership. We're obviously micro cap at around $9 million or so in market capitalization. And this is all in U.S. dollars, although we report in Canadian, but I have -- throughout the presentation, I've converted everything using a $0.75 exchange rate. So who is InTouch Insight beyond people who help, right? Well, we're experienced. We were founded in 1992. We have roots going back to 1978 through acquisitions that we've done. So we've been public actually since 2002, so over 18 years now. And we're also in a valued space. We capture information from a lot of touch points, which I will get to in a couple of slides. We actually improve that customer experience I've talked about, which helps those sales for our clients. We also improve business processes. We ensure regulatory compliance, and we perform data analytics. So the things that we do were valued before and they'll continue to be valued into the future. So what are we? And how do we do that? Well, we're the feet on the street for a lot of the customers that we work with. We provide a lot of recurring services, mystery shopping, for example. A great example for mystery shopping would be going out to an Orange Theory Fitness and evaluating how they treat new members, how they collect and onboard new members? What's the experience like when you're in the class, right? When you go to a restaurant, how is your experience during takeout or delivery or when you're sitting in the dining room today? We do that through mystery shopping, which is a covert activity and nobody knows we were there. The truth is, there's no way for businesses to truly check on how their employees are measuring or monitoring or executing on their own delivery of customer experience because they're all either biased or they're in the hierarchy, and so there's just no way for them to measure it. It takes a third-party covertly to see how things are really working, and we do that. Compliance audits are a big part of our business. We do age verification audits around alcohol and tobacco. And we make sure effectively that the restricted product sales are not being sold to minors and people who are not allowed to buy them. We do health and safety audits, which in the old days, old being 6 months ago, were focused around things like temperature checks and expiry dates and food handling. Today, there's a lot more health and safety type of items, which we'll talk about when we get into some of the changes in 2020. Inventory and Procedures is something that we do as well out there. And that can be as simple as going to convenience stores to see whether or not they have the SKUs on the shelf that they're supposed to have on the shelf. It can be as complicated as going to a pharmaceutical drug rep storage locker or home to make sure that the samples that they're carrying are the right batch numbers, that they're the right drugs and that they're stored properly to make sure that they comply with the Prescription Drug Marketing Act. So we do a lot of cool things in compliance. We also do operational audits, which are sort of the flip side of the mystery shopping. It's not the covert, it's not covert, it's overt. It's typically a surprise an unannounced visit, but you show up and you'll let them know you're there, and then you can check on all kinds of details. You can check on anything you want from cash handling to whether there's a squeegee in every bucket out at the gas pump or gas station. And so you think of the recurring services as the feet on the street going out to locations to check on operational execution and delivery of the customer experience physically in locations. We also have recurring SaaS software business. We have LiaCX, which is our customer experience management platform, which includes some patent-pending Action Campaign Technology. I'll come back to that in a second. We also have a full customer satisfaction Survey Platform, which has all of the normal things you can do with conditions and skip logic and SMS pushes and e-mail and all those cool things. We have a Forms and Checklist Automation product, which is, again, very robust, very powerful. And we have an Event Marketing Automation platform. The Event Marketing Automation platform allows companies who are collecting leads at events to turn those leads into sales, and check the ROI on those. And coming back up the list now, that Checklist Automation Product is used where the businesses are -- whether they're doing a third-party audit or not or they're doing internal audits and checks as well. Almost all businesses have some form of internal checks and balances. They have internal people out there who are using tooling. We provide tooling for that, that collects all that data and captures it and lets them put it in one place, lets them take pictures and do annotations and lets them push out workforce management stuff through there. It's a very cool product in terms of enabling people, who want to do their own audits and other checks with things to do with software and with technology. And what's about cool Lia now, as I said, I would come back to it, is that it is an overarching platform. Think of it as not only a customer experience management platform, but as a pure business intelligence tool set. All of our recurring services information, all of it funnels into LiaCX. Our product lines on the software side, all funnel into LiaCX, and it takes third-party data. We bring in social media data that's relevant to the customers. We also have customers who have things like, for example, a call center. We don't run call centers nor do we want to right now. So we'll bring that data in from that third-party call center provider, and we will bring it in to our platform. In fact, we've got customers who might be using somebody else for something even on the services side. They can bring that data into LiaCX. And what makes LiaCX powerful is that it can bring all that data into one place, and it can provide key driver analysis and automated key driver analysis. So you can go in and maybe you care about your Net Promoter Score. And you can ask the system, tell me what the key drivers of my Net Promoter Score are. And it will tell you, based on all the data that you're capturing, here are the things that are most impacting, they're most highly correlated to your Net Promoter Score. You can then ask it from a predictive analytics standpoint. You can say, "okay, what happened if I improved this by 3% and this by 2% and that by 4%, what would happen to my Net Promoter Score", and it will give you a prediction on what should happen to your Net Promoter Score. Now what makes us unique at this point is that we don't just give you the analytics to the customer and give you the area to focus on, but we give you the Action Campaign Technology, which allows you to actually launch a campaign to fix that. So whatever -- you've decided that the best place for your resources is to fix that. You can now launch a campaign to fix that and you can send out that campaign to all of your locations or to certain roles within your organization, or however you want to send that out, and you can track who does it and who doesn't do it. And then you can track whether or not having done it made an impact on the key performance indicator, you're expecting it to make an impact on. You can see, in fact, basically, the return on the effort that you're spending on the things that you're spending it on. Imagine now you -- part of your organization is franchised. And some of your franchisees don't want to do the thing, you said that they should do. Well, you can actually show them empirically that the franchisees who did the thing are making more money than they are because they didn't do what you asked them to do. So there's a lot of power inside the system in terms of not just allowing you to understand your customer experience, understand whether you should maybe spend time improving your customer experience, but actually giving you the tooling to go at an operationally fix your customer experience. And that is one of the things that makes us unique. At a high level, very few companies are doing recurring services and recurring software inside the same company delivery from a customer experience standpoint. There's lots done in services, lots done in software. There's very few that actually do both and do both, very few. And within those very few, we're the only ones that have the Action Campaign Technology and focus on that operational improvements. And that's kind of what we're doing, that's a little bit different. So therefore, the industries we serve are no surprise, right? We serve people who have lots of places to go, lots of standards to keep across, lots of geography. So Petro convenience, grocery, restaurants, hotels, automotive, pharmaceutical, other retail, and then, of course, that alcohol tobacco, age verification that kind of cuts across a number of those industries. From a company highlights standpoint, in -- we have Fortune 1000 and well-known brands as customers. Again, if you're dealing with people who have a lot of locations, typically, they're not small companies. We also have virtually no attrition since 2013, an incredibly stable and sticky customer base. We have about 2/3 of our revenue coming from the United States with about 99% -- over 99%, in fact, of our revenue on a recurring basis, with 85% coming from services and the remaining from software. And we have a very experienced management team, and we have very strong financial controls, which in the year of 2020 is very important and is serving us very, very well. Taking a look at the historical performance, I took over as President and CEO in the late fall of 2013, with 2014 being my first year. Since then, we've increased 130% over the last 5 years with increase in revenue every year since then. We -- in 2014, when I took the reins, we were at $6.3 million business with 45 employees. For the next 2 years, I made the decision that we were going to augment our recurring services with that software that I've just gone through at a high level. We retooled the business and reinvested our internal cash flows during that time period. We launched our first SaaS product, which was the IntouchCheck product, to start getting experience and really spent that time restructuring the company and its capabilities to be able to produce and sell software. In 2017, we announced a CEM product vision, which ultimately became that LiaCX product, and we did a $2.6 million raise late in the year in 2017 in order to facilitate that. In 2018, we invested growth capital into that CEM product, and we launched LiaCX. We expanded our development, sale and support team around those products. And in 2019, delivered 29% growth, EBIT over $1.1 million, and we expanded our SaaS product capabilities. With 2020, of course, targeted to be much more of the same. As you take a look at 2019, just from a highlight standpoint, we did 29% in terms of revenue growth, 52% in terms of gross margin. We had $1.1 million in EBITDA, 99.3% in recurring revenue. We had no debt, $2.2 (sic) [ $2.9 million ] in working capital, and we also had a current ratio of 3.2. So very strong results across the board. For a value potential for 2020, despite that strong 2019 run rate and trajectory, we started the year at around $0.32 with a market cap of only 0.5x our 2019 revenue. We went up to around $0.56 before the pandemic, when we were working towards our acquisitions and things, but again, it was only 0.7x the originally projected 2020 revenue based on the acquisitions. In July, our share price is hovering around $0.375, which is much less than 1x any reasonable post-COVID revenue forecast even for 2020, which will obviously be a lower year for us. So there's potential to continue to pick up shares at strong multiples at this point. I mean the economic impact in Q2 of the industries we serve is obviously going to be very severe. There is a slower-than-hoped-for global economic recovery in terms of the services industries in general. And so people are taking all that into account. People are scared. And so there is going to continue to be some strong deals out there from what I've seen. InTouch Insight, however, is listed in the top 100 list, such as customer relationship management or CRM magazine, top 100 companies in customer service, marketing and sales. We are listed in there. And that's the leading for the industry. So I think the industry is probably recognizing what we have in advance of what the investors are recognizing, which again, creates value potential. From revisiting our plan, therefore, we finished 2019 strong. Pre-COVID, we'd planned multiple acquisitions. We'd planned similar growth in EBITDA and continued product innovation as we had been doing in 2019, but then COVID hit. And as I announced on March 23, we furloughed 50% of the workforce. However, in April, we have utilized the government programs in both United States and Canada to bring the entire workforce back on the payroll. I'm very proud of the culture that we've built, that all of our employees, executives, directors, everyone has chipped in with personal reduction in wages and other benefits, to the tune of about $0.5 million to make sure that strong through this situation. We've also reduced our workforce permanently by 18% to make sure that we are positioned well to grow from there and not having any overhang. And what all of this has allowed us to do is maintain our key employees, our human capital, our corporate knowledge, to make sure that we have a very strong company to go forward with. So from a refocused standpoint, we're pivoting with our existing clients to focus on that customer health and safety. We can now go out there and we can check to make sure you've got sanitizer and that your people are -- and you've got lines on the floor, marking 6 feet apart, that you've got signs up for people wearing masks. All of the things that people care about today, we can go and check on. The things that are going to make sure you stay in business today and keep customers coming back today, we're positioned to go out and help you with. We're also going to secure new business. We're going to capitalize on the size, unique technology and financial strength of InTouch. And I can tell you that we have, in fact, signed new accounts every month, even in May, right in the middle of the crisis. There -- I think as Winston Churchill said, never let a good crisis go to waste, and we're trying not to do that. And of course, throughout this whole thing, we need to maintain those prudent financial controls and stay very financially viable. In 2021 and beyond, we're looking again for that significant growth to return to recurring revenues for SaaS and services. We're going to be looking at opportunistic M&A, continuing our product innovation and, of course, above all for us remaining financially strong and independent. So taking a look at the future, we were a strong company as we headed into the pandemic. We've only raised $2.6 (sic) [ $3.5 ] million since the original IPO in 2002. InTouch stated publicly that we do not need capital to weather the COVID-19 storm. The need for information regarding customer experience, in fact, is more important than ever today, as is the need for consistent delivery of operational standards is more important than ever today. As I talked earlier about lines in the floor and what have you, all of our industries are starting to reopen right now across North America. And if you're not doing it right, you're not going to keep your customer base. You're not going to get to keep your doors open, in fact, in many cases. And so measuring that, making sure that execution is happening is super, super important today and getting more important as the economy reopens. And we're positioned well to take advantage of that. We've also launched and published consumer behavior studies, and we've been working as a thought leader over the last few months as it relates to people wondering what to do, what do our customers want. We've also positioned our IntouchCheck product as a toolset businesses can use to do their own measuring and monitoring of their execution against health and safety and COVID-19 and other things that are required right now that maybe weren't 6 months ago. And market challenges may create acquisition opportunities for us as well. The truth is, not every business has our capabilities. And many of them over the next 6, 12, 18 months, may decide that they're not able to stay in business, and that may create opportunities for people like ourselves, who were strong throughout the pandemic and throughout the crisis than the industries are having. So from capitalizing on this opportunity, customer experience measurement is an existing, large, fast-growing market, probably $8.5 billion and growing double digits on any measurement you look at. InTouch has a loyal customer base and technology, which is positioned to help businesses deliver operationally. And we have software and services together in a single platform with true market intelligence. And again, that ability to deliver on it operationally. And a lot of our new products are conducive to not just recurring revenue, but also SaaS. So there's a lot of opportunity here from a business standpoint. And when you take a look at financial comparisons, and I won't go through our numbers because we've gone through most of those. But if you look at some of the others, our growth is in line with the lines in the industry. I mean the Gorillas in customer service management, SurveyMonkey, Medallia, our growth was in line with them. In fact, a little ahead of that. The difference is, while we might be small, we're also not losing. They might be -- they've hundreds of millions of revenue, but hundreds of millions in losses. And they're running at 11x revenue in terms of their multiples. Looking at a more direct comparison in terms of size, you've got Prontoforms, which is based in the same city that we're based in with very similar revenues, slightly less growth, again, losing millions of dollars, right, sitting on debt. Lots of shares out there because, obviously, they've had to raise lots of capital running at a 4.2x sales multiple. InTouch is 0.6, 0.6x revenue, which I think speaks to the opportunity here. We have a lack of awareness and understanding, which caused the discounted evaluation, but we have an established a loyal Tier 1 client list, strong financial management capabilities. We're positioned strong as the North American economy reopens. We've got that software and technology platform to provide opportunity for additional future value. And we have a revenue stream, which is recurring and with very little churn. So I believe there is absolutely an opportunity. With that, I'm going to move it over to this slide, and I'm going to answer questions as they come in.

I have a question here, which is asking about the financial help of our existing customers and filing for bankruptcy yet. What I like about that question is the fact that it says yet. The truth is, we don't expect many of our customers, if any, to file for bankruptcy, in that we have a very, very strong customer customers. And we are not as heavy in the restaurant space right now, which is a good time to not be as heavy in the restaurant space. We have had no contracts canceled at this point. We have had one program, which is going to stop, but interestingly not because our customer went bankrupt, but because it was a computer manufacturer, and we were checking on their products inside retail stores or and the retail stores they sell to have closed down, but our customer didn't. So we have had no problem at this point with our receivables. We've had -- and we've had no issues with our customers or impending bankruptcies. So yes, so knock on wood, but so far so good. And we don't have any strong concerns right now about any of our individual customers, but we continue to obviously keep an eye on them. Are there any other questions? It looks like there are no other questions coming in. So if there's no other questions, then I will let someone wrap it up.

This concludes today's conference. You may disconnect at this time. Thank you for your participation.