Wishpond Technologies Ltd. (WISH) Earnings Call Transcript & Summary

Thank you, everyone, for joining us today, and welcome to Wishpond's Corporate Conference Call. My name is Angelica. Joining me on the call today are Ali Tajskandar, Chairman, Founder and CEO of Wishpond; and David Pais, company CFO. This call will be recorded and is being recorded. We will be having questions-and-answer sessions at the end of the call, and questions will be limited to analysts only. Please note portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, many of which are outside of Wishpond's control that may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements implied by such forward-looking statements. These factors are further outlined in yesterday's press release and in the last quarter's management discussion analysis. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except if it's required by law. And with that, let me turn the call over to Mr. Ali Tajskandar, Chairman and CEO.

Thank you very much, Angelica. Good day, everyone. We hope that you're all keeping safe and healthy. We really appreciate everyone for joining us today. I'm very pleased to report Wishpond's expecting quarter 2 2022 to be the strongest quarter in the company's history with revenues exceeding the previous record of $4.7 million achieved in Q4 of 2021. We are proud of this achievement, given the challenging business environment that we're currently operating in. Thus far, we have not noticed the company's growth being hindered by macroeconomic challenges, such as high inflation, increasing interest rates and significant supply chain disruptions affecting other industries around the globe. Wishpond has a diversified customer base of small- and medium-sized businesses, and the demand for the company's products and services remains robust with organic growth over the past year largely driven by the investments in Wishpond's sales and marketing teams. I'm particularly encouraged with the record monthly recurring revenue, or MRR, we achieved in the past quarter. Wishpond posted higher MRR in each of April, May and June compared to each month in the first quarter. And the company is experiencing the same revenue growth trend thus far in July. Based on last month's revenue in June, Wishpond's annualized revenue run rate now exceeds $20 million for the first time in the company's history. Furthermore, I'm happy to note that Wishpond also expects to be cash flow positive in the second half of the year as a result of the revenue growth we have experienced as well as the cost-saving initiatives that we have implemented. Despite the turbulence in the global economy, we look forward to second half of the year with great optimism, and we expect both revenue and adjusted EBITDA to continue to improve in the coming quarters. I would like to now turn the call over to our CFO, David, who will discuss some of the key contributions and cost-saving initiatives which have aided our growth. David?

Thank you, Ali. I'm pleased to say that in addition to our revenue growth, the company also renewed its focus on integrating its acquisitions during the second quarter and implemented a number of cost-saving initiatives and operational efficiencies designed to conserve cash. The management team spent a considerable amount of time on operational and efficiency reviews during the quarter, and we are very happy with the results of these efforts. As a result, the company is expecting to realize more than $1 million in cost savings over the course of the next 12 months. The following are some of the key cost-cutting initiatives. Since completing 5 acquisitions over the past 18 months, we have slowed down our rate of acquisition activity, and we also cut our corporate development costs relating to sourcing new acquisition targets. With few acquisitions, we are able to reduce legal and professional fees as well. We have implemented hiring freeze in most areas of the company. We currently have 34 account executives in our sales team with a goal of setting organic to 45 account executives by the end of the year. We have implemented a number of optimizations and improved workflows and procedures that allows us to maintain the size of lead generation team, even as a number of account executives rose. The net result will be less sales and lead generation expense as a percentage of revenue. As an example, to optimize our lead generation capabilities, we are implementing AI technologies to run certain campaigns, eliminating manually intensive processes and some [indiscernible]. From a technology perspective, we were able to consolidate some of our subscription and software costs across our acquisitions. We are also realizing savings by optimizing our spend on cloud storage costs. We are committed to having a focused mindset on realizing cost efficiencies while keeping a foot on the pedal of our sales generation engine. The company's financial success is predicated on doing more with less. And so we expect to maintain our sales growth even while running the business more cost effectively. We believe that these 2 objectives are not mutually exclusive. This concludes my update, and I will turn the call back over to Ali.

Thank you, David. I would now like to discuss how digital marketing is becoming increasingly vital to business' success. As our customers continue to transition online to generate revenue, digital marketing is becoming the primary way to drive sales. In comparison to traditional marketing, digital marketing gives a higher return on initial investment and a higher customer conversion rate, which ultimately leads to higher revenues. Digital marketing is also more cost-effective than traditional marketing since it does a better job at effectively reaching and converting customers. In addition, digital marketing is more effective than other forms of marketing because it allows you to specifically target your ideal customers by various segments such as geography, demographic, customer preferences, et cetera. The digital marketing businesses are able to achieve higher customer conversion raise by targeting potential customers who may already be looking for solutions you provide. Digital marketing solutions are also effective across industries, making them effective at lead generation for all types of businesses. Furthermore, digital marketing tools are the most effective solutions because they increase your exposure to a larger number of customers or consumers. As consumers continue to shift online, digital marketing allows you to communicate your message to a wider audience over the Internet. These solutions are also all encompassing, which allows businesses to reach customers on all their online platforms such as through e-mail, text messaging, social media, websites, et cetera. Finally, digital marketing is also effective and integral to a customer success because it can provide valuable data. Digital marketing is used to collect data for in-depth analysis on a business' target audience and products, providing businesses with more accurate and useful data, which can be used to make better informed decisions. I would now like to take this time to talk about Wishpond's resilience against a range of recessionary impacts. We believe that Wishpond remains well positioned for continued growth with increasing revenue and improving cash flows in Q3 and Q4. Our current sales pipeline is robust, and we have continued to achieve revenue growth despite the current turbulent macroeconomic environment. The success we are achieving indicates that our products and services are valuable tools for our customers who are using them to generate leads and sales, especially when operating in this uncertain business climate. In the slowdown, companies often reduce or freeze their budgets to grow their in-house marketing sales staff or to buy individual fragmented marketing solutions. However, they still need to acquire new clients to keep their business afloat. And so businesses looking to cut costs would find value in Wishpond's all-in-one consolidated software platform, which costs a fraction of all the individual products it would replace. Wishpond is a low-cost alternative that is more likely to thrive in a recession. As I mentioned previously, Wishpond has a diverse customer base of almost 4,000 businesses with little customer concentration and financial dependence in any one industry. We serve a wide variety of industries, which provides us with the ability to shift focus quickly if market conditions adversely affect any specific industries. In addition, our organic growth rate does not show any signs of slowing down, and we are getting more new clients than ever before. These clients are increasingly signing up for annual 12-month terms, which provides us with further stability in case of any economic downturns. Moreover, the cross-selling opportunities provided by our acquisitions also improves the stickiness of our platform and aids in retaining customers for longer periods of time. Moreover, with the company's focus on profitable growth, Wishpond has begun scrutinizing all discretionary expenditures across the organization. With the intent of optimizing operations, achieving cost saving synergies and remaining cash flow positive for the second half of the year, the company embraces a low-cost structure with a virtual head office and a remote team, which allows Wishpond to operate with lower overhead costs. Wishpond's fundamentals remain extremely strong, and we are very positive on our future outlook. Wishpond expects revenue and earnings growth to accelerate in the second half of 2022 as revenue in the second half of the year benefits from seasonality due to our small and medium-sized business customers increasing their spending to invest in various online marketing campaigns, contests and promotions to maximize the revenue from the increasing consumer spending during the back-to-school, Thanksgiving and holiday season. In addition, revenue growth will also benefit from the completed integration of the company's recent acquisitions and an increase in the cross-selling opportunities between products and solutions offered across all our product lines. We expect to generate positive cash flow in the second half of the year. Wishpond has a healthy cash balance and the company is able to fund this future growth without having to raise any additional equity or debt. In addition, the company still has its untouched $6 million line of credit with National Bank. Before closing, I would like to comment on the recent decline in our share price. As everyone on the call is aware, our share price has experienced a decline over the past several months. We do not believe this drop in our share price is warranted. -- given our growth potential, our large market opportunity and our strong financial position. We believe the overall capital market conditions are the primary cause for the weakening in our share price, and small-cap tech stocks have suffered the worst in this market correction. That concludes our presentation, and I will now hand it back to Angelica.

[Operator Instructions] So the first question is from Gabriel Leung from Beacon Securities.

Ali, I'm curious, I know on a year-over-year basis, there's a number of acquisitions that's helping with the growth. But I'm curious, as you look at this business sort of sequentially, what's the main driver of growth for you? Is it -- are you seeing more banners? Or is it really more an increase in ARPU from existing customers? What do you feel is the main driver at this point?

A bit of both. But right now, currently, we see more revenue growth from new banners, new customer acquisitions. And Gabriel, I guess the other thing to also note is that, in terms of our Q2 numbers, we made the acquisition of Viral Loops as well. And even without that, we are having all of those record revenue and MRR growth numbers.

Got you. Obviously, you've got a lot of "let's get bullish" talking points as part of what you're seeing in the business. I'm curious, what are some of the headwinds that, I guess, most concerning for you or some of the things you might be watching out for that might act as headwinds for the business? Is it around wage inflation? Is it potential weakness in certain verticals? What keeps you up at night?

I think a couple of things. One of the things that obviously keep us up at night and it goes back to some of the things we've already done in Q2 are the general capital markets environment and making sure, first and foremost, we are cash flow positive and the company is not finding itself in a vulnerable position that has to raise money in unfavorable terms or when the stock price is where we don't want it to be. So because of that, in Q2, we've done a lot of efforts that we talked about that have resulted in more than $1 million of annualized savings. So that one to some extent was #1. And then we wanted to make sure we can do that without jeopardizing growth. And we've demonstrated that we can do that quite well. We're also seeing that, that is continuing into July, and we expect that to continue. Now obviously, no one knows what future brings. Recession, if it happens and it hits businesses in higher-than-expected ways, obviously, certain businesses could have pullbacks in their spending and in their online presence needs. But I feel we are still very resilient against that, and we have a lot of different levers that we can pull in terms of switching to different industries in terms of the pricing power that we have with the existing clients. Also, because over time, we've acquired more businesses and now the all-in-one platform is quite robust, we're -- as we're rolling it out as a unified package, as a bundled offering, it is helping and hedging against those turbulences and decreases in demand because then it would be harder to forgo so much more functionality with your online presence.

Got you. Just maybe one last question for me. Obviously, you've been making some great investments in your direct sales efforts. I'm curious anything new to talk about in terms of channel and direct strategies?

We are -- in terms of direct sales strategy, it's basically the same strategy we've had. We're continuing to have very aggressive targets and the targets are being met and our lead generation and the number of demos that we're booking and all of that are record time highs. And one of the things that is interesting, and we were talking about that with some of our management team members is what we're seeing is sometimes actually, in certain times, difficulty finding demos with our sales people or people who do want to talk to our team, which is definitely a great problem to have as opposed to not having enough demand. And I think it just goes to show that what we're seeing on the ground as of right now is quite different from what the capital markets as a whole expect. And maybe it is that we are a beneficiary of -- as a low-cost alternative or beneficiary of people being concerned and want to save costs and find efficiencies.

Got you. Congrats on the progress.

No problem. Thank you very much.

The next question is from Chris Thompson of PI Financial.

Ali, maybe just looking at -- you mentioned the 12-month term contracts. You're seeing more of those. Are you providing discounts to get those types of contract wins? What's driving that?

No, we're not providing more discounts than before. In fact, actually, some of the average values per month have increased deliberately to offset some of the headwinds we expect in terms of inflation. The reason for that is just basically our sales mandate that let's push for those longer contracts. And that was something that had started previously as well and we are not seeing any pushbacks from our prospects.

Okay. That's great. And just on the competitive environment. I mean what are you seeing your competitors do in terms of price hikes in this inflationary environment? And then what are your plans of having to increase your pricing?

Yes. We see a lot of companies in the digital space increasing their prices. You can see that with Slack. You see that with -- a lot of different companies are already doing that. And I think the opportunity that I see most interesting to us is there are some pricing increases that we're already doing, as I mentioned earlier. But the biggest opportunity that we're starting to realize in bundling of the different companies that we acquired under one product offering and offering it together at a higher price point just for the software itself and then adding some of the services on top of that, which means that we can actually garner higher prices per -- higher ARPUs per customer. And also it is more integrated and more ingrained in their businesses with higher stickiness. That's the biggest opportunity we see and we're pursuing right now.

Okay. Great. And just one more for me, just maybe on your integrated suite. Obviously, there's some white space where you want to fill in with M&A, but you're not doing M&A, I guess, in this environment. do you have any intelligence on those customers that do churn due to a lack of a certain product module that they want and they need to go elsewhere? And do you expect maybe churn might increase a little bit if you're not able to fill some of that white space if the stock price remains depressed over the next kind of 6 to 12 months?

So I'll answer that in 2 parts. The first part is that in terms of M&A, since we looked at, as we mentioned earlier -- I mean previously, we looked at 350 to 400 different companies last year. And the beginning of this year, we were also at the same pace. Now we've slowed it down. But that means that we still have a strong pipeline, and we also get a lot of inbound interest coming our way, and some of the terms are more favorable than before. So it's not that we've completely stopped M&A activity. I think we're just being more opportunistic and more patient and waiting for the right deal and also to see how we can structure those deals and so forth. So it's going to be a slower pace. Now going back to your second point, I think what is interesting and what we're seeing is that the product offering is very robust as it stands. In terms of the marketing hub of Wishpond and the online sales hub of it and the CRM functionality, a lot of those pieces that we needed to have now we do have, and customers when they look at that often, they're quite surprised at the depth and breadth of the offering. Now can we add live chat that we don't have? Can we add a few other functionalities? Of course, there's really no end to it. But I feel like and we've validated this in the demos that we've done for the new packages that it is fulfilling the needs of most of the people we talk to, and we're not currently seeing them say, "Well, I won't go with you or I will leave if you don't have this one extra piece of functionality." That's not what we're seeing. It is complete enough already and it will only get better over time.

The next question is from Neil Bakshi of Canaccord.

Just following up from one of the questions about the increase in the number of kind of annual contracts. Just wondering if you could share any color on the vertical market kind of mix of those customers who are opting for annual plans. Just any kind of change there versus what you had before.

To some extent, it's similar to how we had it before. I think we -- the only change might be that we are having more B2B businesses in the mix than we had before. I would say if we look at the snapshot of the company a year ago, e-commerce was a more prominent percentage of the new customer acquisitions and now B2B businesses are catching up, and they're quite a bit larger as well.

Okay. Great. And then just, I guess, building off of that, you had noted in one of the other updates that PersistIQ has been a big driver of that vertical. Is it fair to say it's been a big driver of kind of the MRR growth over the past 3 months sequentially? Or kind of what are you seeing between the different acquired entities and driving the MRR?

It definitely has exceeded our expectations, and it has really helped in a lot of different ways, and it has also rounded the offering in terms of what we can offer to B2B businesses. Before having PersistIQ for online sales, we had big gaps, and now with PersistIQ exist in a larger form. But having said that, when I look at the individual business units for the past quarter, all of them showed tremendous growth. There were -- when I look at them, basically, all of them or almost all of them met their MRR growth targets that we set for them, and they were aggressive growth targets. PersistIQ exceeded it beyond other ones, that is true, but the rest of them were also not laggards.

Great. And then just one more question. As you talked about the kind of positive free cash flow or cash flow inflection still expected in the second half of the year, just wondering then building off of that and then the annualized savings you've identified, looking, I guess, further out, you guys -- despite the general seasonality in the business, is it something that the company is willing to say, okay, in terms of kind of positive cash flow generation on an annual basis, is that something that's within sight for, let's say, full year 2023? Is that a target that's kind of achievable even factoring that seasonality? Or is it still a little early to make that kind of outlook?

For the year 2023, we do expect it to be cash flow positive as well. And for the year 2022, also we expect in balance for it to end up being cash flow positive as well as a whole. And I think we plan to stay cash flow positive. So everything we're doing is actually adding more buffer in there and more cushion and try our best not to go into negative again.

The next question is from Saurabh Dhir on behalf of Dan Rosenberg of Paradigm Capital.

I guess my first question is for David. You mentioned $1 million of cost savings. And I just want to understand like they are distributed among the gross, the cost of goods sold versus the operating side. Generally, will that like change the trajectory of the gross margins going forward?

Saurabh, good to chat with you. The cost savings across the board, some of them impact cost of goods sold and some of them are below the line. With regard to our cost of goods sold, we are always looking to bring up [ 10% ] basically gross margin percentage. I can't say right now until we release our numbers later is to give you a little bit more forward-looking guidance on that. But in terms of where most of them are going, I can actually say a lot of them are going below the line, even though some of them are impacting gross margins.

I would say one of the ones that we talked about earlier in this presentation was about server costs. So that one would be above the line, but most of the other ones are below the line.

Got it. Makes sense. And then generally, with the rising inflation, I can imagine the input costs are rising. Have you made any changes to the pricing that you initially had in the range of like $50 to $200?

Right, right. Yes, that's a very good question. So there's 2 parts to that question. One is for managed clients and one is for self-serve software-only packages. For managed ones, my answer is the same as what I mentioned earlier, which is, yes, we have actually increased some of those prices if the starting price was on average, about $500. Now typically, it would be closer to $600 as an example. But I think perhaps your question is more related to the software-only packages as well. And it goes back to what I was just mentioning to Chris, that you're right. In the past, if you just wanted Viral Loops, let's say, you could pay $40, $50 a month or Wishpond $75 a month and so on and so forth. Now the unified consolidated platform that we are kind of integrating together and are about to roll out would be higher price point. Obviously, it would include more of these pieces, but the price point would be a few hundred dollars, maybe it's USD 300 per month and above just for that part of it. And then any additional upgrades would be on top of that.

And congratulations on the record quarter.

Thank you very much.

Okay. And the last question is from Kiran Sritharan on behalf of Christian Sgro with Eight Capital.

I'd like to start off by digging on the demand environment. I'd just like to find clear your thoughts on what it looks like in between the e-commerce and your brick-and-mortar customers. Are they -- is there any differences there? Are they about the same?

Historically, we focused more on -- for new customer acquisitions, we had more of a prominent focus on e-commerce businesses. And as I mentioned now, B2B is becoming more prominent, and those B2B businesses tend to be more what you would call brick and mortar. And so it is balancing out. Both of them, to be honest with you, demand is solid. Our closing rates on the demos are good. I haven't noticed a -- and I haven't heard a major shift in demand in either of those to the point that would be noticeable and I would be able to share with you. One other thing actually I'm glad -- had triggered another point in my mind to mention is Wishpond is a marketing technology platform. It's not an ad tech platform. Advertising technology platforms are expected to be affected by recession and these demand changes a lot more because ad budget is part of their revenue. And a lot of these larger businesses especially would pull back their spending quite a bit in tougher times to save money. Advertising is not really part of our revenue. It's marketing subscriptions and recurring subscriptions that you're paying. Whether you're spending any money on ads or higher or lower, you will still have to pay for that, and that is another layer that actually gives us some level of protection.

Great. On the brick-and-mortar itself, like was the split there just pretty similar to the overarching business, where it's about 50-50 on the self-serve and fully managed? Is there any -- as you go through the year, is there any pushback? Or is there going to be any change to the macro might have on that split?

We currently don't have a plan to change that makeup. But if we see that there's pushback in certain areas, we would obviously be quick to make that change. I think what is interesting about -- it goes back to also what we're talking about recession resilience. In March of 2020, when COVID hit, we had a lot of businesses that were fitness and hospitality and resorts and spa and those kind of businesses, and we also sold to e-commerce, but e-commerce wasn't as large as it is for us now. And then we made the -- and for that segment of the market, we actually lost some customers, and we took a hit, but we were quick to make the change to say, okay, there are certain businesses that are not doing well. You can't even reach out to them. And when you reach out to them, they're not very happy to hear from you. And there are certain businesses that are actually doing well, like e-commerce businesses, does make that switch. So in the coming quarters, if we noticed that demand is starting to shift, we will also obviously change the makeup and the targets that we would go after. But as of right now, we haven't seen that happening. So I think I've mentioned before that we have interest in pushing more towards B2B anyway. So that is a plan that we had before regardless of recession, and more than likely, we will pursue that.

Great. Appreciate the color there. And my final question here is on WinBack and the legacy Wishpond customers that were trialing the platform a couple of months ago. Would appreciate some color on how those conversion rates have gone and I think they were around promotional pricing. Has that changed at all? Is it too early to say? Any color would be helpful here.

Yes. Some of them have already upgraded and are paying for it. But unfortunately, I don't have the exact numbers to share with you. It's a good question. I'll make sure for the next call to have that handy to share with you. So I don't know the answer to that right now. But I think it is also important to note that one of the most important reasons for us to acquire WinBack and use WinBack in the mix for our customers has not just been for the increased revenue but also for improving stickiness and providing more value to our clients. And now with the new packages that we're talking about the all-in-one integrated package, WinBack and Viral Loops and PersistIQ and so forth and Wishpond are all sold together. We will be sold together, and existing clients will also be upgraded to those packages as well. Obviously, we'll talk about it more in the coming months. It's still early days. But I'm quite excited about that and the value that clients get from it.

Congratulations on the quarter, Ali.

Thank you very much, Kiran.

There are no further questions. I'll now pass the call back to Ali Tajskandar for closing remarks.

Thank you very much, Angelica. In closing, I want to thank all the employees at Wishpond, whose hard work continues to elevate the company to higher levels. We want to thank our customers who rely on us to help them with their digital marketing needs. I want to thank everyone once again for joining our call today. Thank you to the analysts for their questions. We look forward to reporting our Q2 financials, which we anticipate will be around August 24. Everyone, please stay safe and healthy. Thank you very much.