Tinybeans Group Limited (TNY.AX) Earnings Call Transcript & Summary

Well, good afternoon, everyone, and thank you for joining us today. My name is James Warburton, I'm the Chair of Tinybeans. With me on the call today is our Managing Director and CEO, Zsofi Paterson; and our CFO, Rebecca White. On today's call, I'm going to provide you with a brief overview of the Qeepsake acquisition, we announced on Monday before passing over to Zsofi and Rebecca, who will take you through the details. Then, we'll open the call up for Q&A. Monday marked a really important step for the company as we announced the acquisition of Qeepsake, a transaction that we believe transforms the scale and potential of our business in a highly capital-efficient way. Over the past 18 months, the team has executed a disciplined turnaround in the business, reducing costs, strengthening our balance sheet and returning the company to positive operating cash flow. And this acquisition builds directly on that foundation we've created. Qeepsake brings with it a loyal subscriber community, complementary journaling technology and a shared mission to help families privately capture and celebrate their memories. Together, Tinybeans and Qeepsake will create a larger, more efficient and more valuable platform, serving close to 90,000 paid subscribers globally. Importantly, this is a fully scrip-based transaction with no cash outlay and will be completed at a fraction of the cost of acquiring these subscribers organically. It reflects the disciplined strategic approach we've taken to growth and positions us strongly for the next phase of our journey towards sustainable profitability. I want to acknowledge Zsofi and the broader Tinybeans team for the focus and execution that they have brought to us to this point. With that, I'll hand over to Zsofi and Rebecca to take you through the details of the acquisition, the integration road map and how this sets up Tinybeans for continued success. Thanks, Zsofi.

Thank you, James. Good afternoon, everyone, and thank you for joining us. Today, I'll be taking you through the key highlights and strategic rationale of the Qeepsake acquisition before passing over to Rebecca, who will run through the transaction terms and some of the financials. We'll then open the call up for Q&A. If you have any questions during the presentation, you can submit them by the Q&A button on your screen. On Monday, we announced the acquisition of Qeepsake, a privately owned U.S. family-based journaling platform with just under 50,000 paid subscribers and USD 4 million in revenues. This all-scrip acquisition is transformational for Tinybeans and almost doubles our scale overnight. As a combined business, it will grow our paid subscribers by 80% and our combined pro forma revenue by 85%. It offers compelling product and platform synergies that will drive monetization, growth and relevance. It accelerates our path to EBITDA profitability, and it was highly cost efficient, being all scrip and at 0.66x FY '25 revenue, assuming all performance hurdles are met. So what is Qeepsake? Qeepsake is the only SMS-based family journaling product in the market. It combines digital journaling with physical Qeepsake books. It serves a really similar audience to Tinybeans, being parents with young children who use the product to capture and share their child story. It was launched in 2015, and it rose to popularity after it appeared on Shark Tank in the U.S. Like us, it is a subscription-based model with 2 subscription plans. And unlike us, today, it is only available in North America. In FY '25, it had U.S. annual recurring revenues of $3 million and $1 million in photo book revenue. Importantly, it's backed by LaunchCapital, a prominent early-stage investor and part of the Pritzker Vlock Family Office. Pre-acquisition, LaunchCapital owned 32% of Qeepsake. We're delighted to have Cliff Sirlin, the Chair of Qeepsake and a venture partner at LaunchCapital, who will be joining our Board. This acquisition puts us another step closer to becoming the leading privacy-first family memory platform. Tinybeans and Qeepsake share a mission to provide a safe and trusted way for families to capture, save and preserve their precious family memories. Over the next year, we'll be bringing Qeepsake's coveted journaling features into Tinybeans to expand our offering with a new premium subscription layer. Our feature sets are complementary. And interestingly, despite high overlap in target audience, there is less than 1% overlap in our subscriber bases today. This deal drives value from day 1. As of today, it has a combined subscriber base of 100,000 being 51,000 from Tinybeans and 49,000 from Qeepsake, combined pro forma revenues of $8.9 million, a high LTV at USD 352, nearly 1 million monthly active users across the platform and 100,000 photo books ordered since launch across them both. We note that subscribers and revenue will come down a bit over FY '26 following integration and before we return to growth. Turning to the strategic rationale. This deal drives scale, adds recurring revenue, offers product and platform synergies and financially contributes top line growth, high gross margins and accelerates our path to EBITDA profitability. This transaction is very much part of our long-term strategy to expand Tinybeans' footprint in the U.S. and strengthen our position as the leading privacy-first family memory platform. Post integration, we expect to have 90,000 combined paid subscribers plus millions of free users on Tinybeans with over 90% of them coming from North America. The larger subscriber base and audience gives us new monetization opportunities, enriched data sets and a stronger competitive advantage. Our strategy over the last 2 years has been developing our recurring subscription revenue given its resilience, predictability, high lifetime values and premium valuation multiples. The acquisition contributes high-value recurring subscription revenue with pro forma FY '25 subscription revenue increasing by 92%. The deal also materially grows our photo book revenue, which is a revenue line we're betting big on over FY '26. After subscription revenue, recurring transactional revenue tied to core subscription product experience is the next best type of revenue for resilience, predictability and margins. By combining Qeepsake's high sell-through rate with our soon-to-be launched in-app Photo Store, we are bullish on the expansion opportunity the combined business brings in a growing multibillion-dollar market. The acquisition drives powerful product and platform synergies with complementary features that serve a different user amongst the same audience. Where Tinybeans focuses on private family photo sharing, Qeepsake focuses on journaling and smart SMS-based prompts. Both are highly engaged products with strong retention and high lifetime value. Together, journaling completes the daily family memory loop, allowing us to introduce another high-priced subscription tier within Tinybeans and expand our addressable audience amongst families. We have a well-developed integration plan, which is now underway. In the immediate term, we are focused on realizing operational synergies and reducing costs and resourcing associated with Qeepsake. We're increasing our product development efforts to develop the features required within Tinybeans to confidently migrate the Qeepsake subscribers over, offering them a better experience than their existing one. We will be utilizing AI to speed up our development efforts and deliver a best-in-class product experience. This activity will occur over the next 6 to 12 months, at which point the Qeepsake app and brand will sunset. Doing all of this under one platform and brand enables us to leverage the strong brand equity of Tinybeans, strengthens our ability to compete and offers operational and marketing efficiencies. We've touched on this throughout, but over the next 12 months, we will be reducing focus on the Qeepsake brand and platform with a view to bringing it all within Tinybeans. For this reason, we expect some subscriber attrition and have priced the deal accordingly. This is an intentional approach, which is designed to retain the most engaged and profitable users, which we believe will deliver stronger unit economics for the business moving forward. Even allowing for planned attrition, the cost per retained subscriber is materially lower than the organic cost of growth today and the valuation multiple remains less than 1x revenue on the full transaction value. Looking forward, we expect the scale and product offering of the combined business to open up further opportunities in a multibillion-dollar growth market. This acquisition helps position us at the intersection of family tech and personalized gifts and consumer products, which is a $10 billion growth market. Our immediate focus is on the integration. However, management and Board believe this deal will pave the way for further audience, product and data expansion opportunities, which will further accelerate our revenue and growth. I'll now hand over to Rebecca to take you through some of the financials and the key transaction terms.

Thanks, Zsofi. So as we bring these 2 businesses together, the combined group will benefit from increased scale with pro forma annual revenues of approximately $8.9 million for FY '25, compared to $4.8 million for Tinybeans on a stand-alone basis. This enhanced scale strengthens our market position and provides a more diversified and stable revenue base. Importantly, the integration also unlocks significant synergy opportunities that will drive EBITDA margin expansion and improved operating leverage. We have identified various cost synergies, primarily across shared administrative services and marketing, which are expected to flow through progressively over the next 12 months. These efficiencies are expected to lift EBITDA margins post integration. Together, these initiatives put us on an accelerated path to EBITDA profitability, driven by both revenue growth and the full realization of synergy benefits over the coming year. Turning to the key transaction terms. The purchase price for the asset acquisition is a maximum of USD 2.7 million. And as Zsofi mentioned earlier, this has been structured as an all-scrip deal. $1.2 million will be paid upfront by way of the issue of shares upon completion of the transaction, which is subject to customary conditions. There is a further performance-based component of up to 1.5 million that's been structured to reward subscriber retention, disciplined cost management and successful integration. The performance hurdles tied to the achievement of key financial milestones, including revenue, EBITDA and paid subscriber targets over the earn-out period. This structure ensures that value is delivered in line with performance, balancing downside protection for our shareholders with strong upside potential for all parties. Importantly, the sellers will continue to be actively involved in the business post completion, ensuring a smooth transition and continuity of strategic focus. As Zsofi mentioned earlier, Cliff Sirlin, the Chair of Qeepsake, will be joining our Board of Directors; and Tracy Cho, the CEO of Qeepsake, will be joining as General Manager of Qeepsake. Further details on the transaction terms are included in the ASX announcement. That concludes our presentation, and we're happy to answer any questions. Thank you.

Zsofi, I've got a few questions that have come through here. The first one is there must be a lot of acquisition opportunities in the U.S. What was so attractive about Qeepsake? And what does it strategically add to Tinybeans?

Thanks, Rod. Yes, look, we were interested in Qeepsake from the get-go. The synergies of the product offering and the way that they -- that both our products serve a similar audience, but in quite different ways, meant it felt like a really natural product extension to our existing audience. It also gives us larger scale in an audience that we know intimately, and we think that it allows for several other ways that we can think about monetizing them via product data kind of partnership type opportunities. So it was -- there was a strategic meeting of the minds, which was then validated through extensive due diligence on the business and on the numbers and coming up with a plan that we thought really made sense strategically and then definitely made sense financially as well.

The next question is, there isn't a lot of pro forma financial detail with this acquisition. What's the reason for this?

I'll let Bekka touch on this if she wishes. But this deal really was deliberately focused on the strategic and economic metrics of the acquisition rather than the pro forma financials because the near-term integration period is really about an integration. And so from that point on, the business then will be looking towards growth. Bekka, do you want to add anything to that?

Yes. No, that was a really good answer. No. So we've included pro forma financials for FY '25, which shows the numbers that the deal was based on. We've spoke about the path to integration and the business will look very different after that. So right now, we're really focused on that strategy. And as the numbers start flowing through, they'll be announced to the market accordingly.

The next question -- what does this acquisition mean for Tinybeans's profitability?