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

Hello. Thank you, everyone, for joining us today, and welcome to Wishpond's 2022 Fiscal Second Quarter Financial Results Conference Call. My name is Angelica and joining me on the call today are Ali Tajskandar, Chairman, Founder and CEO of Wishpond; and David Pais, the company's CFO. This call is being recorded. [Operator Instructions] I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion at analysis from sedar.com. 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 provision of those laws. Forward-looking statements involve unknown and known risks, uncertainties, assumptions, and other factors, many of which are outside of Wishpond's control that may cause the actual results, performance, or achievements to differ materially from the anticipated actual results, performance, or achievements implied by such forward-looking statements. These factors are further outlined in today's press release and in our management discussion and 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. We use terms such as gross profit, gross margin, adjusted EBITDA, annualized revenue run rate and monthly recurring revenue on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definition set out in their management discussion and analysis. 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 truly appreciate everyone for joining us today. We are very pleased with our second quarter results, which proved to be the strongest quarter in the company's history, with revenue of over $5 million in the quarter, representing 55% year-over-year growth compared to the same period last year. During the second quarter, we achieved 2 significant milestones. First, Wishpond passed $20 million of annualized revenue run rate. And secondly, the company achieved positive cash flow from operating activities. I'm particularly proud of having achieved positive cash flow from operations in the second quarter as that puts Wishpond in an elite class of software companies. Technology companies are known to burn lots of cash for many years before becoming cash flow positive. Very rarely do you find a software company of our size with $20 million in annualized revenue run rate that generated positive cash flow from operations and is also rapidly growing with 30% to 40% organic growth. Wishpond truly is a unique, high-growth profitable company, and we remain committed to delivering profitable growth in the future. Despite the current challenging business environment with high inflation, increasing interest rates, and recessionary concerns thus far, we have not noticed any slowing down in the demand for our products. Our sales pipeline remains robust, and our revenue growth shows tremendous resilience despite the current uncertain economic conditions. Wishpond has a diversified customer base of small and medium-sized businesses and its healthy organic growth over the past year has largely been driven by investments in the company's sales and marketing teams, applying our sales-driven methodology to the acquisitions we've made, and new product introductions. Our outlook continues to look promising for the second half of the year with increasing sales, improving margins, and positive cash flows. I will provide additional details on our outlook later on the call. But first, I would like to turn it over to our CFO, David Pais, who will review the financial results for the second quarter. David?

Thank you, Ali. I am pleased to report that we had very strong second quarter results for the 3 months ended June 30, 2022. Our first quarter 2022 results are as follows. Wishpond achieved record quarterly revenue of $5 million during Q2 2022 compared to revenue of $3.2 million generated during Q2 2021, an increase of 55%. Revenue growth in Q2 '22 is attributable to the company's expanded sales team, new product introductions, and acquisitions. Wishpond achieved gross profit of $3.4 million in Q2 '22 compared to $2.2 million during Q2 of 2021, representing an increase of 50%, which is driven by an increase in overall revenue. Wishpond's gross margin percentage in Q2 2022 was 67% compared to 69% in Q2 of 2021. The gross margins are within the company's historical range of 65% to 70%. The United States remains our largest and fastest-growing market, generating 69% of our total revenue in the quarter, with approximately 15% and 16% of revenue generated from Canada and the rest of the world, respectively. During Q2 '22, Wishpond achieved an operating loss of $659,000 compared to an operating loss of $1.1 million in Q2 of 2021. The operating loss reflects continued investment in sales and lead generation as well as in product development. Earnings before interest, tax, and depreciation, or EBITDA improved from negative $1.3 million in Q2 2021 to negative $527,000 in Q2 2022. During Q2 2022, Wishpond recorded an adjusted EBITDA loss of $192,000 compared to an adjusted EBITDA loss of $320,000 in Q2 '21. The improvements in EBITDA and adjusted EBITDA are primarily driven by higher revenue, recent cost savings initiatives, and operational efficiencies achieved in the latter half of the quarter. In Q2 '22, Wishpond returned to net positive cash provided by operating activities of $81,000 compared to a cash burn from operating activities of $802,000 in Q2 of 2021. We continue to have a clean and healthy balance sheet. As of June 30th, 2022, Wishpond had $2.5 million of cash and cash equivalents, and the company has no debt. Wishpond has a $6 million secured revolving operating lines of credit facility with National Bank of Canada's Technology and Innovation Banking Group, which remains undrawn as of today. In summary, Wishpond is in a very strong financial position with a healthy balance sheet, solid monthly recurring revenue, and very good visibility on revenue and cash flow for the current year. Wishpond is able to continue to grow comfortably from its cash flow from operations without the need for any additional equity dilution or debt. I will now provide an update on our normal force issuer bid or share buyback program. On June 15, 2022, the company announced the renewal of its normal course issuer bid, or NCIB, was approved by the exchange. During the second quarter, the company did not make any second -- any share purchases under the NCIB. In comparison, in the first quarter of '22, the company purchased 130,100 common shares under the NCIB for aggregate consideration of $157,265. The Board of Directors of Wishpond believes that the recent market prices of the company's common shares do not properly reflect the underlying value of such shares and that the purchase of the shares will be a desirable use of corporate funds and the best interest of the company and its shareholders. Hence, we intend to reinitiate share purchases under the NCIB program in the coming months. I would now like to provide some additional commentary on our recent cost reduction initiatives and operational efficiencies. I'm pleased to report that the company implemented several cost reduction and operational efficiencies during the second quarter designed to conserve cash, which have resulted in the company expecting to realize more than $1 million in cost savings over the course of the next 12 months. The management team spent a considerable amount of time on this project and we are very happy with the results of this effort so far. The following are some of the key cost-cutting initiatives. Since completing 5 acquisitions over the past 18 months, we have slowed down our rates of acquisition activity, and we also cut our corporate development costs relating to sourcing new acquisition targets. With fewer acquisitions, we were also able to reduce the company's legal and professional fees. We have implemented the hiring freeze in most areas of the company. We have implemented a number of optimizations and improved workflows and procedures that allow us to maintain the size of the lead generation team even as the number of account executives drill. The net result will be a lower amount of sales and leaden expenses as a percentage of revenue. To optimize our lead gen capabilities, we have implemented AI or artificial intelligence technologies to run certain campaigns, thereby eliminating labor-intensive processes and costs. From a technology perspective, we were able to consolidate some of our subscription and software across our acquisitions. We have also optimized our AWS and cloud storage costs. We are committed to having a focused mindset on realizing cost efficiencies while keeping our foot on the pedal of our sales generation engine. The company's financial success is predicated on increasing our revenue while running the business cost-effectively. This concludes my financial update, and I will turn the call back over to Ali.

Thank you very much, David. I would now like to share with you some recent business updates. On July 12, 2022, the company announced the launch of our all-new website builder product that includes lead tracking and segmentation tools, personalization abilities, advanced forms and pop-ups, integration with Wishpond's e-mail marketing tool, referral marketing, calendar functionality, pop-ups and more. Every element of this groundbreaking website builder has been designed to help businesses generate leads and sales. The website builder is expected to increase customer retention, reduce churn, and increase customer satisfaction. On April 20, 2022, the company announced that the number of Winback's customer installations had increased by over 50% since we acquired the company. We are encouraged to find that certain customers prefer Winback because of the benefits of SMS over e-mail or newsletters as a marketing tool and helps them to build customer loyalty more easily. We are working on several initiatives designed to maximize growth from Winback, such as adding a number of features to improve the customer onboarding process and increased product effectiveness. We are also integrating Winback into the Wishpond's platform to encourage ease of cross-selling. We began accelerating the growth of Winback customer base through our outbound sales engine and are speaking to several agencies about how we can partner with them to sell Winback. On April 1, 2022, the company completed the acquisition of certain assets and specific liabilities of Viral Loops LTD. Viral Loops is a Software as a Service or SaaS company, which helps its customers design, create and manage campaigns that result in higher referral visits and revenue for their clients. In consideration for the Viral Loops acquisition, Wishpond provided a cash payment of $1.38 million and a 1-year performance earn-out that may be paid in cash or by the issuance of company's shares at the sole discretion of the company. The 1-year earn-out will be based on the projected revenue of the business and is payable on a quarterly basis. The Viral Loops integration has been progressing very well. We have started leveraging our sales and marketing as well as our R&D teams to enable more efficiencies and growth of that business. For example, we're beginning to integrate the Viral Loops product with Wishpond products to enable a higher average revenue per user bundled sale. We expect to begin realizing the results of these efforts in Q4 and onwards. The product complements Wishpond's other products very well, and we will be making some specific announcements about our Viral Loops product integration and product pricing plans in months ahead. We are proud of the Viral Loops team and welcome their creative energy as they begin to work with the rest of the Wishpond family. Viral Loops was our fifth acquisition since the company's public listing in December 2022 -- sorry, 2020. One of the reasons for doing a public listing was so that we could pursue an acquisition strategy. Our acquisition strategy has been a resounding success as it has broadened our product offering, boosted our revenues, and increased our customer base. Think about this, when we went public, we had approximately 2,000 customers, and we achieved $7.9 million in annual revenue in the year 2020. Today, just over 18 months later, we have over 4,000 customers, and we have exceeded $20 million in annualized revenue run rate. Our acquisition strategy is working and that's complemented the company's organic growth very nicely. 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 rely on Wishpond to generate leads and increase their sales, especially when operating in this uncertain business climate. Wishpond is all about helping small businesses grow. That's our purpose. Big businesses have armies of online marketing specialists, designers, and programmers, and they have access to best-in-breed technology and plenty of financial resources, and trying to compete with them is very difficult. Wishpond is the platform that makes it easy to use online marketing to bring in new sales and leads without tons of resources and deep expertise in marketing. And that's something that is valued in this market more than anything. In an economic slowdown, companies often reduce or freeze their budgets on their in-house marketing and sales staff or on individual fragmented marketing solutions. However, they still need to acquire new clients to keep their business afloat. And so businesses looking to cut costs, find value in Wishpond's all-in-one consolidated software platform. which caused a fraction of all the individual products it would replace. Wishpond is an effective low-cost alternative that is more likely to thrive in a recession. As I mentioned previously, Wishpond has a diverse customer base of more than 4,000 businesses with very 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're getting more new clients than ever before. These clients are increasingly signing up our annual 12-month terms, which provides us with further stability in case of any economic downturns. Furthermore, the cross-selling opportunities provided by our acquisitions also improves the stickiness of our platform and aid in retaining customers for longer periods of time. Moreover, with the company's focus on profitable growth, Wishpond is scrutinizing all discretionary expenditures across the organization with the intent of optimizing operations, achieving cost savings 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 expects to achieve record revenues with positive adjusted EBITDA and cash flows in second half of the year, driven by increased capacity in company sales team, positive contributions from its acquisitions, increased bundling of its products and services, new product-related revenues, and favorable seasonal effects in Q3 and Q4. In line with the company's focus on profitable growth, Wishpond will continue to scrutinize all discretionary expenditures across the organization with the intent of optimizing operations and achieving cost savings synergies. The company has a clean balance sheet and is able to continue to fund the growth of its sales team and new product launches from cash flows from operations without having to raise any additional equity or debt capital. Wishpond expects its sales to benefit from seasonality in the second half of 2022. This is due to small and medium size business and marketing campaigns, content, and promotions to maximize their revenue from the increase in consumer spending during the back-to-school, Thanksgiving, and holiday seasons. Wishpond fundamentals remain extremely strong, and we are very positive on our future outlook. We don't see demand slowing down because of 2 major reasons. One, our organic revenue growth is driven by our outbound sales team. Last year, we increased the size of our sales team from 12 to 24 account executives. This year, we are currently at 36 account executives, and we plan to have approximately 40 to 45 account executives by year-end. We are generating significant demand for our products by ourselves. The sales team's calendars are completely booked for demos with no slowdown in sales activity in sight. 2, we have a solution that is unique, integrated, and cost-effective, making it more appealing to small businesses than ever before. Instead of having anywhere between 3 to 6 different marketing-related point solutions, small, medium-sized businesses would rather have just one solution for Wishpond. Furthermore, business is keeping a close eye on their costs or looking to cut costs, Wishpond has a much cheaper alternative to an internal marketing person or a complement to an internal marketing person instead of expanding. We lead risked marketing platform available for small, medium-sized businesses. Both our existing customers as well as the acquired customers are benefiting from the range of online marketing options that we provide under one roof. We are very satisfied with the features and functionality of our overall platform. We've already successfully created integrations between the different products across the acquired businesses, and we've implemented cross-selling capabilities. We are now developing bundled pricing plans that bring the most value for our customers. Our development team is working hard to build additional integrations, single sign-on capability, and a single dashboard for all the products in one integrated platform. In terms of acquisitions, we do not expect to be making acquisitions at the same pace that we have been doing over the previous 18 months, especially given the current economic environment and the weakness in capital markets. We previously evaluated approximately 400 opportunities as potential acquisition targets, and we continue to remain in contact with some of these targets and receive new inbound acquisition opportunities. Wishpond continues to experience strong performance across all its businesses with robust demand for its products. Based on current MRR trends, monthly recurring revenue trends, we are very optimistic about the asset for 2022 and beyond. 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 since the beginning of the year. We do not believe this drop and our share price is warranted, given our fundamentals remain extremely strong, and we are very positive on our future outlook. We believe the general capital market conditions are the primary cause for the weakening in our share price and a small-cap pick stocks have suffered the worst in this market correction. 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 and growth. Also, I'd like to thank you all for joining us on this call today. We look forward to providing an update next quarter. Thank you, and I will now hand it back to Angelica for questions.

[Operator Instructions] The first question is from Gabriel Leung, Beacon Securities.

Just a couple of things. First, Ali, I'm curious with the focus around cost savings initiatives and implementing a tech to improve the efficiency of your sales group and still with the expectations that have grown organically by 30% to 40% year-over-year. Have you guys thought about how your EBITDA margins might scale into calendar '23. Obviously, you're targeting positive for the second half. I'm curious, what are some near to midterm EBITDA margin targets that we should be thinking about?

I don't think we've openly discussed any of those targets, and we haven't given a specific guidance on EBITDA. But having said that, I think you can see the trend already that in Q2, our EBITDA improved significantly. And you have to also keep in mind that coming out of Q1, April was the weaker and every month became stronger and stronger and more of the cost efficiencies were put in place. And the second half of the quarter in terms of EBITDA was even stronger, and we're already talking about the second half of the year to be cash flow positive, adjusted EBITDA positive, and all of those things. I think your question is a very good one, and it's something that we keep in mind all the time, which is we want to have the right balance of aggressive growth and making sure that we're financially responsible and profitable, right? So that is going to be our focus going forward. And naturally, as we scale and the fixed costs don't scale at the same rate as the revenue that is picking up, we're going to see 2 things happen. Our margins are going to improve. Our margins are already compared to Q1, you see 6%, 7%, but we expect it to continue to improve and get above 70%. And we also expect our EBITDA to improve as well. To what extent for next year, we're not giving specifics on that.

Got you. And just one last quick thing. I just wanted to confirm. I know you guys had talked about implementing a hiring freeze, but at the same time, though, you are still planning to increase that sales rep count from 36% to call it, 40% to 45%. Is that still the case?

That is correct. So what we're doing is we are very careful about increasing those people. So it's not a black and white hiring freeze. We're scrutinizing every single decision before making it. As an example, even that 45% target for account executives, previously, we were talking about 45% to 50%. And now we're seeing that, no, we can find efficiencies with the same account executives bringing more revenue, and we can do the same or even better than what we expected with 40 to 45 account executives. And we have to be careful at the rate that we add these people to the company. But again, it goes back to your first question in terms of EBITDA. We are still very much a growth story here, which means that even though we're very careful about our cash flow, we're going to invest in areas, but we're more careful than ever before in what we invest in and if it makes sense or not. But as an example, account management and support to service the clients that we've onboarded, meeting sales targets, and adding account executives to make that happen are still going to continue.

Our next question is from Daniel Rosenberg of Paradigm Capital.

I wanted to ask around the cash flow. It was nice to see you turn positive and guide to more positive cash flow for the back half of the year. I just wanted to understand directionally given, you mentioned, some seasonality as well as just general working capital changes. Should we expect cash flow to scale? Or is this going to be a lumpy type line item? How do you see it going forward?

I think I'd like to ask David for his thoughts as well, but I'll share my thoughts on that first. The way we're operating right now is even excluding seasonal -- positive seasonal effects helping us. We expect to continue to be cash flow positive and deliver cash flow positive for the next half of the year. and to continue the current trends and even in some of them accelerating that. Seasonal effects are just going to help us even that much more. David, anything else you want to add to that?

Sure, Ali. And thanks, Daniel, for the question. In terms of cash flow, we generally talked about things like EBITDA and adjusted EBITDA. The good news, when you go straight out of the cash flow statement is you can give a GAAP-based context of saying, "Listen, just looking at my cash flow statement, my cash flows from operations are positive," right? So we wanted to highlight that because the previous quarters, if it's not. Your comment on variability of working capital is a good one. It may or may not go up and down. But so long as the profitability is in the business, which seems to be improving. I think directionally, just like Ali said, we'll be good for cash flow from operations, same cost.

Yes. I think thinking about it, Daniel, the main thing for us is that it's not just what we tell the investors in the company and the broader market. It is a matter of making sure that the company is safe and set up for success long term. And there are a lot of different numbers in terms of EBITDA and adjusted EBITDA and cash from operations and this and that. At the end of the day, the number that I asked the team to report to me every Wednesday at 12:00 p.m. is how much money do we have in the bank account. And really pure and simple, that is the number that we're focused on seeing growth, not decline. So this is something that is part of our strategy going forward as well, and it's going to continue improving.

Yes. And if I can make one more point, the cash decline, if you look at quarter-to-quarter cash decline. All of that came from amounts that we spent on acquisitions or payments for earn-outs. So again, if you look at Q1 to Q2, any decline in cash balance came specifically from those transactions and not from cash flow from operations. So we want to highlight that very clearly that says, "Listen, our business is really doing well. Revenue growth has increased. We're really keeping costs under control. And here is the results. The results are evident for everybody to see."

Thanks for that. And to that end, it does sound like the past acquisitions are performing really well and achieving their targets. Just curious to hear were there any surprises on your end that you saw now that there -- some of these acquisitions are well integrated or even just newly acquired that are performing better than expected?

I think, Daniel, I think one thing that we were quite excited to see was we always had this mandate of making these acquisitions for financial reasons as well as strategic and have the cross-selling opportunity and everything else. What we validated also with our customers and through new bundled sales packages was that as we put these products together, let's say, you're a small business that comes to us. And we say, "Listen, with our website builder, we can actually migrate you or redesign your website on Wishpond platform, on website builder and your B2B business, you need to send sales e-mails and purchase IQ is going to be bundled part of that as well, and you want referral marketing capabilities, and that's going to be from Viral Loops. And you need some SMS marketing that comes from Winback as an example." And all of those you get as part of your subscription to Wishpond and seeing how well our customers are responding to that and the value that, that is creating, allowing us to charge higher monthly prices for the software subscription alone has been something that we expected, but now we're validating, and we were seeing it is super exciting to see. And I think that's going to be a huge factor going forward. So the way to look at the acquisitions we've made so far and hopefully in the future, is that they all need to have that multiplier effect that in addition to them themselves on their own being able to grow, they can help Wishpond as a whole becomes a stickier product, a faster-growing product, a higher average revenue per user product offering and really the best solution for small businesses, and that is really being realized right now.

That's good to hear. And lastly for me before I pass the line. I was just curious around retention. Are there any patterns you're seeing in the types of customers or verticals that tend to be stickier versus some churn you're seeing? Just any characterization there?

Generally, what we do see is that the e-commerce companies and B2B businesses, and service-based businesses. What we're seeing -- well, not what we're seeing, what we're intentionally doing is we're diversifying the new customer acquisitions that we have more than we did in the past year with everything that was going on in the world with COVID, e-commerce businesses were doing the best, and we focused on new customer acquisition around e-commerce more. And now with businesses having opened up, now we're adding the B2B business and the rest of the service business is more in that. And generally, with e-commerce businesses, some of them are quite small, and they might be Shopify store that just opened and they might not be as established and sometimes stickiness could be a problem. Just the risk of the business itself, not existing is higher than, let's say, B2B business or a more established service-based business. So we do see that. In terms of trends within our business, though we haven't seen any choppiness. We haven't seen a negative trend is actually has been improving over time. And that's something that now with some of the bundled packages that in the future we will announce, we expect it to improve even further.

The next question is from Chris Thompson of PI Financial.

Ali, did I just hear you say your churn is declining? Did I get that right?

Overall, yes.

Okay, good. And happy to hear you guys being so positive on the outlook. Can you give us any anecdotal evidence is MRR tracking higher in July and August versus June?

That's more a question of what I can disclose. David, what have you already talked about? I think some of the things we talked about in the preview of the earnings. We already talked about that every month, we were hitting new MRR records. And coming into Q3, I guess you can really put the pieces together. We're almost more than half the way through Q3, and we're so bullish on Q3 and Q4. So I think that tells you everything you need to know.