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spk00: Good morning, everyone, and welcome to Q4's third quarter 2021 earnings call. My name is Matt Trachtenberg. I'm Q4's investor relations officer, and I'm joined in our Toronto headquarters by Daryl Heaps, our CEO, and Ryan Levenberg, our CFO. Please note that the presentation you will see here this morning is also available on our website at investors.q4inc.com, so no need to scramble taking notes. A replay of the event will also be available later this morning. We're excited to be using our own virtual events platform today. Video is here to stay, and it's a big part of how we all work today. So what better way to deliver our quarterly results? To those in our virtual audience, there's a feature you can use to submit a real-time question. Simply click on the Q&A button in the bottom right corner of the window. Investors have also been submitting some great questions through our IR website, so we'll get to many as time allows. Research analysts are still within the restricted window, but we look forward to them joining us next quarter. We need to remind participants that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions related to the forward-looking statements, please refer to Q4's public filings, which are available on CDAR. During the call, we will reference certain non-IFRS financial measures. And although we believe these measures provide useful supplemental information about our financial performance, they're not recognized measures and do not have standardized use under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. So with all that out of the way, I'll hand it off to our CEO, Daryl Heaps. Great.
spk01: Thanks, Matt. And it's my pleasure to join you and Ryan here this morning. However, before getting into the third quarter results, which we're thrilled to take you through, I wanted to take a couple minutes to reintroduce Q4 to those on the call that may not know us very well. Q4 is a capital markets communication platform that's designed to connect public companies, the buy side and the sell side across their most critical workflows, namely investor relations, corporate access, research and deal management. The problem we're focused on solving is that the capital markets continue to be disrupted by regulation and technology, forcing investors and corporates to be more proactive in how they discover, communicate, and engage with one another, and forcing investment banks to be much more efficient in how they provide their services to both investors and corporates. And the problem with how these challenges have been addressed to date by other vendors is that each of the applications that exist in the market to try to solve these challenges are delivered through separate applications from different providers with no shared data, identity, or insights. And they rely on copy-paste workflow from one application to another. If you compare this fundamental investing side of the market to the trading side, you can see the stark difference. On the trading side, we have unified systems, shared data, and mind-blowing efficiency. While on the fundamental investing side, including investor relations, corporate access, deal management, and research, the industry is functioning much like it was 15 years ago. To the PMs here today, you use a software application to research your potential investment opportunities, another to engage with them, a third to perform your ESG due diligence, another to consume sell-side research, and yet another to join a conference or an NDR. This is not efficient. It's the opposite, and it's only getting worse. Research analysts and banks have the same problems, but also have to distribute and monetize their research. They facilitate corporate access services, need to identify the right investors for the companies that they cover, and the bankers orchestrate complex deals between investors, corporates, and numerous other parties, including lawyers, accountants, and advisors. These desperate siloed systems see no benefit of the data flowing through each of the use cases. and certainly don't capture the data and use it to improve the next transaction. Our mission is to change this and to unite the three sides of the market, bring corporates, the sell side, and the buy side together on our platform with integrated applications, shared data and identity, all supported by valuable and differentiated analytics and insights designed to help connect the right company to the right investor through the right bank at the right time. In executing this mission, we can see clearly the efficiency gains that will come from it and the opportunity in front of us to build a large and durable business, more than 10 times larger than where we sit today. While we are early in this journey, we have made some significant progress so far. Today, we are a leader in the corporate investor relations space with 2,600 companies using Q4 to manage their investor website, host virtual events, and use our newer solutions in the IRCRM and shareholder analytics space. And these clients represent some of the most incredible companies on the planet, including more than 50% of the S&P 500 that use one or more of our products today. This year, we also began expanding our platform to the sell side and providing our investor conference solution to corporate access and event management teams at investment banks. Although this is an earlier part of our business today, it is growing fast and we expect it to become a much larger segment over the coming years, along with our plans to expand our solutions to include research and deal management. In terms of investors, today, these are the end users of our products, with more than 13 million investors interacting with our clients through our platform and network of websites each month, and more than 600,000 investors joining virtual events such as earnings calls, investor days, or investor conferences each quarter. However, moving forward, we intend on expanding our solutions for investors, including analytics, research, and corporate access solutions. And although we are early in our journey, we feel very good about the performance of the business over the last few years and where we're headed. The way that we run the business is focused on the following two key metrics, and I would suggest that you do the same going forward. First is total revenue growth, being the combination of both our organic and inorganic growth. Combined, we have delivered a 49% CAGR over the last three years with roughly 30% coming from organic and the balance from acquisitions. And going forward, our plan is to deliver the same, if not better, into the future. To drive total revenue growth, there are four key elements. One, acquire more customers. Two, sell more to existing customers. Three, expand our solutions to all three sides of the market. And four, use M&A to accelerate our execution. The second key metric is gross margin expansion. We have made significant investments in our platform, data, and service model to scale the business, and these are really starting to pay off, expanding our gross margin, which will drive meaningful profitability through the business. Today, there are three elements that are driving our gross margin expansion strategy. One, consolidating our data vendors and optimizing for scale. Two, vertically integrate our virtual events offering. And three, invest and build out automation. As we execute our mission of connecting the three sides of the market onto our platform and tracking this progress through consistent revenue growth and margin expansion, we are confident in our ability to deliver significant shareholder value over the coming years. Finally, before getting into the quarter, I wanted to first thank all of our customers and amazing people at Q4 for the work they do in bringing new customers onto the platform, serving existing customers, and in bringing new products to market. Our culture remains strong and continues to serve us very well as we execute our strategic plans. For the third quarter, we are very pleased with the 13 million in revenue achieved for the quarter, which exceeded our expectations and represents a 30% organic growth over the prior year period. This revenue growth was driven by exceptional new customer acquisitions, adding 145 new customers, including names such as Moderna, Black & Decker, FireEye, Toast, and TD Securities in the quarter, along with strong upselling of additional products to our 2,600 customers. We also delivered a stronger-than-expected gross margin of 57%, a 380 basis point expansion over the prior year, driven in part by improvements in our virtual events offerings. In addition, annual recurring revenue continued its strong growth trajectory at 25% year-over-year, crossing $50.3 million at the end of the quarter. During the quarter, we also made great progress on our strategic partnerships. First, we signed a three-year renewal with the NYSE, allowing us to continue to welcome both IPOs and Tier 1 issuers onto the Q4 platform. Next, we expanded our integration with BusinessWire, the leading wire service in North America, by building their NX technology into our platform, enabling us to deliver real-time news content and multimedia directly into our platform, helping to strengthen our sales partnership and continue to drive sales referrals between Q4 and BusinessWire. We also continue to broaden our relationships with leading European exchanges and technology partners. providing important data to our current clients and offering us improved access to huge lists of potential new customers. Expanding our business in Europe is an important part of our strategy and you should expect to see us make progress here in future quarters. During the quarter, we also launched a number of new products and extensions that we are very excited about. First, we launched a new ESG product suite consisting of both websites and virtual event solutions designed to help corporate issuers and how they communicate their ESG narrative and related ESG disclosures. This is the first of many ESG products we plan to bring to market over the coming quarters. And during the quarter, we also launched two new virtual event offerings on our proprietary virtual events platform, including our new corporate town hall edition and the next version of our capital markets event solution. Our capital markets events solution has been used by numerous banks throughout the quarter to support full-blown investor conferences, as well as virtual bus tours. Moving forward, we have numerous events planned for both virtual and hybrid style investor conferences throughout the balance of the year. In general, our strategy with virtual events is to focus on the pre and post workflow data and interactions that come from hosting these virtual and hybrid style events. By integrating the data and insights from these events onto our platform, we are able to provide functionality and insights that are highly differentiated and valuable to our banking and corporate customers. No matter where the market ends up in terms of virtual or in-person meetings, our platform and our approach will continue to bring new value to this space. And we're excited to release the next version on our platform in the fourth quarter with expanded capabilities, including event management, registration, and scheduling functionality. Building off these capabilities during the quarter, we also establish a great new business relationship with the TMX Group here in Canada, where they will be using our Capital Markets Events platform to deliver their Investor Day series in the fourth quarter. Finally, during the quarter, we made significant progress on the work required for us to launch our corporate earnings features on our virtual event platform. And while it's still early, the results here are very promising. As of last week, we've completed over 200 corporate earnings events on the platform. and we look forward to migrating the remainder of our earnings business onto this platform over the course of 2022. In addition to the superior experience for both attendees and customers, the key benefit of this new platform for Q4 is our ability to improve the experience for users while reducing our costs and expanding gross margin. Virtual events is an expanding and material part of our business, and by vertically integrating this segment onto our platform versus using third parties, it will continue to drive significant margin expansion through year-end 21 and throughout 22. Finally, in regards to M&A, we continue to make great progress during the quarter, and we're really pleased with the discussions we're having in market. We are focused on building out our pipeline and executing on the more advanced opportunities in front of us. We are moving quickly here and we look forward to updating you in the near future with the progress we are making. So in summary, we're really pleased with this first quarterly earnings period and feel very good about how we've been executing against our strategy, building out our platform and continuing to deliver strong total revenue growth along with significant gross margin expansion. And with that, I'll now turn it over to Ryan for the financial review.
spk02: Thanks, Daryl, and good morning to everyone. It's great to be with you here today on our first quarterly earnings call. I'm going to start with revenue and some metrics, discuss the margin expansion we drove in the quarter, review OpEx, touch on our key balance sheet items, and finish with some thoughts on what you should expect from us going forward. Revenue for the third quarter was $13 million, growing by 30% from the year-ago period, exceeding our expectations. That performance was driven by strength in both capital markets platform, growing by 28%, and by platform services, which grew by 63%, both on a year-over-year basis. Remember that the majority, or 83%, of our capital markets platform revenue is subscription revenue based on long-term contracts. It's very predictable with an attractive margin profile. Overall, I'm pleased with our continued progress in growing our top line this quarter. The strategy to acquire and onboard new customers, up and cross-sell existing clients on our platform, and deliver rich virtual experiences to investors, banks, and management is proving out. At the end of the third quarter, ARR was $50.3 million, a 25% increase over this time last year. As we continue to add customers at a rapid pace and are successful in moving up the adoption curve of additional products, you should expect to see this figure grow at a healthy rate. Average Revenue Per Account, or ARPA, allows us the ability to track how we're executing against the key performance metrics. Customers often come onto the platform with one or two of the products we offer, an IR website and virtual event, for example. Then, as we show them the value of our comprehensive offering and build trust with them, we win more of their business. We have a solid track record of doing this, and as we expand our offering, we expect it to continue. At the end of the third quarter, ARPA exceeded 18,000, a 5.1% increase over the third quarter 2020. However, excluding customers acquired via M&A, SPACs, and IPOs, that ARPA exceeds 21,000 and has grown at twice that rate. Today, more than 1,000 of our 2,600 customers use more than one product on our platform. That's almost three times the number we had in 2018. We've made investments in our sales team and have adjusted the way we go to market to ensure that we're consistently driving this number higher. During quarter, we brought on 145 new clients. I'm pleased by the additional logos in our core market, and I'm encouraged by the new sell-side clients joining from the investment banking side who have begun deploying our capital markets event platform for their virtual and hybrid investor conferences and virtual bus tours. While attracting new customers is important, keeping them is even more so. Our strong commitment to exceptional customer service ensures that we focus on what is most important, taking care of our clients. During the quarter, we are very pleased with the ability to retain customers, as evidenced by the 94% controllable logo retention over the last 12 months, while continuing to expand net revenue retention above the 113% disclosed in our perspective. This retention rate, when paired with an increasing ARPA and low customer acquisition costs, sets us up really well for future growth. As Daryl mentioned earlier, one of the key performance metrics we focus on is gross margin expansion, and we're really pleased with the progress we made during the quarter. Gross margins expanded by 380 basis points to 56.9% as compared to the year-ago period. This improvement was driven by the progress made on key cost initiatives in our virtual event segments, as well as the timing of new hires. Remember, three things will help us expand gross margins going forward. First, we have begun to shift our underlying data feeds that power our CRM and analytics products from a per-seat cost structure to one that offers Q4 a more fixed cost structure. The strong relationship we have with key vendors is a key example of how our strategic partnerships can impact multiple points of our business. The second is through our vertical integration of our virtual event platform, reducing our reliance on third-party vendors. Daryl spoke about how many clients have had a successful earnings event on our new event platform, more than 200 so far in the current quarter. And third are the investments we are making in automation to optimize for scale across all of our product lines, which we expect to drive improvements over the next few years. In the third quarter, operating expenses totaled $10.9 million. Sales and marketing totaled $4.5 million, or 35% of revenue, coming in slightly lower than expected. Key areas of investment included growing our direct sales team and driving thought leadership initiatives, offset by improved efficiency in marketing investment. R&D came in at $2.6 million, or 20% of revenue, and G&A was $3.7 million, or 29% of revenue. Both came in slightly lower than anticipated, driven in part by the timing of additional headcount. Adjusted EBITDA was negative 3.3 million for the quarter, significantly better than anticipated due to the improvements in gross margin, efficiency in marketing, and the timing of additional headcount. In terms of headcount specifically, we would expect some of the spend that did not occur in the third quarter to occur in the fourth quarter as we work hard to continue scaling the business and onboarding new team members. Our core working capital metrics remained strong and consistent with the historical trend, ending with a working capital of $5 million, which excludes deferred revenue. Our operating cash flow during the quarter was $2 million, driven by a one-time cash payment related to Q2 revenues. As of September 30th, we had $20.6 million of debt outstanding, which we intend on repaying in November. Following the closing of our IPO on October 29, which raised 100 million Canadians, our balance sheet is well positioned to execute against our organic and inorganic growth opportunities. As you've likely heard us say, we make investment decisions that are in the long-term best interest of the business. This means that when we see an attractive investment opportunity, one that will help us achieve our long-term growth or margin objectives, we will value that benefit over the short-term impact. For this reason, we have decided not to provide explicit quarterly or annual guidance at this time. However, we want to ensure that you have the right information and insights to be able to do your job. Therefore, we would like to offer you a bit more color as to the trends you can expect from us. We would expect revenue in the fourth quarter to be up slightly on a sequential basis. This will allow us to drive annual revenue growth in excess of 30% this year. We anticipate gross margins in a similar range to the third quarter, which would result in a significant expansion over the year ago period. And of course, as discussed, we're continuing to make critical investments across the business, namely in sales and marketing and research and development. These investments will enable us to expand our offering, enter new markets, and solidify our leadership position. The rate of those investments relative to top-line growth will slow over time, But for the foreseeable future, you should expect us to run even a negative through the next year or two. That concludes my prepared remarks, so I'll hand it back to you, Daryl.
spk01: Great. Wonderful. Thanks, Ryan. To wrap it up, we are very pleased with the performance this past quarter, both from a strategic and financial perspective. Moving forward, it's clear that we are uniquely positioned to benefit from the secular growth trends you see in the market. Our team is executing incredibly well, and our strategy is proving to be very effective. I want to thank our customers, employees, and shareholders for their ongoing trust, support, and hard work. And we look forward to seeing you throughout the quarter. And with that, I'll pass it back to you, Matt.
spk00: Thanks, Daryl. For our audience, we'll now switch over to our live video Q&A feed. So give us just a second or two to make that change. That'll also give you some time to submit any questions that you might have via the webcast. Great. So welcome again. The pre-recording that you just watched, our prepared remarks, is something that most of our customers are now doing. It's also a service that we provide to them. It ensures that issuers are accurate and it gives them the ability to correct any mistakes that they make in the commentary. But we're here live now in the Q4 office and ready to take your questions. The first question, Daryl, maybe the first question is for you. It came through our website earlier. And it says, you speak a lot about M&A. What types of companies are you looking to acquire and why?
spk01: Well, great. Thanks, Matt. And nice to be here with you and Ryan this morning. And welcome, everyone, on this stream. In terms of M&A, so the way that we really think about it is, first off, is we've been pretty successful at executing the five deals that we've done in our history. And the way that we really look at potential acquisitions is really first off from a strategic perspective in that, when we think about the platform that we're building out, we are really looking for companies that are able to help us either accelerate on our execution or bring new kind of products and services to the platform and to our broad customers. There's really kind of two main buckets, if you will. The first is around consolidation. So this is in the core markets that we are already competing in. So that would include businesses and services that are really within investor relations and corporate access. Um, the, the second is really around, uh, expansion. So these are, um, also within kind of the corporate access space, but also getting into things like, um, research management, deal management, and also ESG. Um, you know, in general, we, we think that there is a, um, just a huge potential as we bring these kind of point solutions onto our platform and we benefit from being able to connect all the workflow, but then even more so from the data and insights that can flow across all those products. So we've got a great pipeline, lots of fantastic discussions going on, and we look forward to really updating everyone on the stream and our investors in the market over the coming quarters as we look to bring these onto the platform.
spk00: Great. Excellent. Ryan, I see a question that came in through our webcast from the audience. Please walk through what drove the EBITDA performance in the quarter. Sure.
spk02: And good morning, everyone. There were three things that impacted EBITDA this quarter. The first one was the additional revenue that we saw relative to our expectations. And some of that went down straight to the bottom line. The second is around gross margins. About a third of the EBITDA performance relative to our expectations was as a result of better than anticipated gross margins, really driven by some of the cost savings around our virtual event line items, as well as timing of additional headcount. And the third one is relative to our operating expenses. We saw some beats in terms of marketing as well as timing of additional headcounts there as well.
spk00: Okay. Thank you. Another question from the audience. I think this one's for Daryl. Can you talk a little bit more about how you collect and leverage the data that you get from interactions and what you do with it?
spk01: Sure. So I think the first thing to think about when you think about the platform that we offer is the scale that it's already operating at. In that I mentioned in some of the prepared remarks, Now we're tracking around about 13 million interactions between investors and our clients across our platform and network of websites. And now we're around 600,000 or so investors logging on to virtual events that are hosted on our platform, just like this event here today. When you think about that kind of scale and that reach of having over 50% of the S&P 500, we have a tremendous amount of kind of insights in terms of the behavior of investors across the web. When we combine that with also our kind of ability to really analyze trading and analyze investors and funds over a period of time, it gives us this really incredible ability to understand kind of behavior and intent. What we do is take all of that kind of information and we're able to package it up into specific recommendations to our corporate customers. So this is kind of traditionally known as targeting. We call it AI targeting. This is really delivering a set of investors to our corporate clients around really the fit and probability of each fund for that company at a particular point in time. That's something that's really powerful and has been very helpful to our corporate clients in terms of understanding who they should be targeting and how to prioritize it. But where we're headed is being able to use that same type of insights to help our investment banking clients when they're looking to target a particular deal or also down the road to help folks on the buy side really kind of uncover companies that they may have not seen in the past. And all of this is kind of done in a highly secure, with a real mind in terms of privacy. And it's something that which is really the personally one of the most exciting parts of what it is that we're building is really this underlying data layer. And we're just really starting to tap the tap the potential in terms of what we can do with that today. But into the future, I think there's some really exciting things we'll be able to do.
spk00: Ryan, there's another one from our live audience. Congratulations on the quarter. Is this type of margin improvement that we should expect in future quarters?
spk02: Thank you. We certainly appreciate that. And we're going to continue to invest for the long term. And that means that sometimes our spend is a little bit episodic or lumpy. And that has a variability which then impacts our gross margin. So I think the question is, is is the margin path going to be consistent at the pace you saw today? No, I wouldn't expect that. There's going to be quarters where we have to spend a little bit more, but that's certainly aligned with our strategic plan and certainly the right thing to do for our business. I think what you should expect from us is consistent year over year growth. And as we execute these initiatives that we spoke about earlier, we're going to move this thing into, we're going to move our gross margins into the sixties over the next couple of years.
spk00: Daryl, another one that we grabbed from the website before we started. Can you talk about the competitive landscape a little bit?
spk01: Sure. I think the first way to think about our competitors is that they're largely made up with point solutions. So these are folks that maybe we compete in the website segment or within virtual events or within analytics, CRM, et cetera. And so all of those competitors, they range really in size. So from kind of large businesses, kind of exchanges that are their competitive products are kind of a subset of what they offer. to smaller independent operators on a regional basis. The real kind of our value proposition is in the connected nature of our platform. And the fact that we deliver all of these products together as one workflow really helps us deliver kind of unique functionality and differentiated analytics and insights that it's very difficult for the point solution providers to match. That's something which has been really key, this kind of platform value proposition that we have in market. And that's something that we're continuing to double down on when we really look at kind of where we're headed is looking at how do we tie everything together even more so to deliver those kind of unique workflows. And, you know, I think the tied back to M&A, the fact that so many different point solutions out there in market and the fragmented nature of the market is something that we see as a great opportunity, again, for we see a number of businesses out there that we think would be superior actually being part of our platform and connected rather than being independent. So we see that as also a really great kind of opportunity going forward.
spk00: Great. Thanks. I think we're going to try and squeeze in one more question before we let everybody get back to work. Daryl, this is from our live audience, actually. Regarding your product roadmap, can you talk about what capabilities you're focused on building out?
spk01: So it kind of follows on what I've already mentioned so far in terms of what we're really focused on. So first off is really around kind of the unique aspects of how all these different workflows are connected. And that's something which we're really prioritizing. But more on a kind of product-specific basis, we are really excited about what we're doing in the virtual event side of things. Today, here, this morning, this entire presentation now delivered on our proprietary platform virtual events platform that we're really excited about. In the remarks earlier, we talked about kind of running over 200 of our earnings calls on this platform. This is one of those calls. So I think what you're going to see is we're really committed to the virtual events side of things. So we're going to continue to invest there. While we're also really continuing to invest from a roadmap perspective in terms of the kind of like overall functionality of how workflows cross many different products. So really exciting stuff. We're really hitting on all cylinders from a product perspective and feel really good about, you know, the next, like now through to the end of next year in terms of what we're going to be bringing to market.
spk00: Excellent. All right. So, guys, thank you very much. Appreciate that. And to our audience, before we let everybody go, I just want to share one thing that we're going to be participating in three events in the coming weeks. Next week, we're going to be at the TD Securities Virtual Tech Conference on December 1st. We're going to be live at the Credit Suisse annual tech event in Phoenix. Times and links to both of them are on our website. If you want to join us in person or virtual, let us know. We're happy to make time for you. And then finally, on December 9th, we're going to be joining Infor for a podcast for the investor community. So watch for the replay that's going to be posted on our website. To our shareholders and analysts, it goes without saying, if you have any questions, please reach out to me at ir at q4inc.com and we'll respond quickly. Thank you all for joining us today. We hope you found this helpful. Have a great day, everyone.
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