Q4 Inc.

Good morning, everyone, and welcome to Q4's fourth quarter 2021 earnings call. My name is Sarah Pearson, and I'm Q4's Director of Investor Relations. And I'm joined this morning with Daryl Heaps, our CEO, and Ryan Levenberg, our CFO, to review our fourth quarter and full year results. Please note, a copy of today's presentation will be available on our website. Following the prepared remarks, we will be looking forward to welcoming our research analysts on the call for a live Q&A session. To those in our virtual audience, you can use the webcasting Q&A button to submit questions in real time. We need to remind participants that certain information discussed on today's call may be forward-looking in nature. Such forward-looking information reflects the company's views with respect to the future events. Any such information is subject to risks, uncertainty, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the assumptions related to the forward-looking statements, please refer to Q4's public filings available on CDAR. During the call, we will be referencing certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are 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 reconciliation to the nearest IFRS measure. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. With all that out of the way, I will pass it over to our CEO, Daryl Heaps. Daryl?

Thanks, Sarah. And good morning, everyone. Before getting into our 2021 annual and fourth quarter results, I wanted to take a brief moment to talk about our mission at Q4 and becoming the largest capital markets communication platform in the world. The way to think about our business is that we sit at the intersection between corporates, the sell side and the buy side. We focused our initial business on the corporate side, specifically the investor relations workflows required for our corporate clients. In 2021, we began expanding into the sell side, specifically helping corporate access teams produce a wide range of investor events from bus tours to large conferences. As we move forward, we are going to continue to expand our platform to serve all of the critical workflow and data needs for each of the three sides of the market. On a related note, today you are experiencing our new Q4 earnings platform, which incorporates live and prerecorded video, all captured using Zoom, along with interactive audience questions. As well, joining us shortly on the platform will be a few of our covering analysts asking their questions. It's going to be a great session, so let's get started. Overall, 2021 was another exciting year in terms of the progress we were able to make against our strategy and the milestones we achieved. Specifically, we are thrilled with posting an annual growth rate of 37% for 2021, exceeding our expectations of 30% organic growth that we have set for ourselves. We also exited the year with a fourth quarter gross margin at just under 60%. I'll let Ryan speak to the details on this. However, the point that I wanted to make is that our focus on delivering both sustained growth and margin expansion are the two key elements to our path to profitability and free cash flow generation in 2023. During the year, we also experienced some incredible client growth, ending with 2,656 clients, with 612 new clients added in 21. This growth was driven largely by new logo acquisitions throughout the year, combined with strong renewal rates across the client base. Platform adoption and ARPA also continue to grow as a result of delivering our innovative platform products, along with strong upselling and cross-selling across the business. Finally, this year, we're also really pleased to deliver strong and consistent growth outside of the U.S., primarily in Europe. International expansion is an important component to our growth as we execute against our large and global TAM. From a product perspective, the vertical integration of our events business continues to be one of the key drivers of both our product innovation and gross margin expansion. During the quarter, we continued the rollout of our new corporate earnings platform, delivering over 600 earnings events to date. In December, we released the latest version of our capital markets events platform with an expanded set of functionality designed to support online, hybrid, and in-person investor events for our sell-side customers. We also saw continued success of our new ESG website product, launched in the third quarter. As we all know, ESG is changing the corporate reporting landscape, and we feel this is an important new segment for us to bring new and innovative products. Keep an eye out here for, on this front, more to come. Finally, during the year, we made significant progress on a number of key data initiatives that have really laid the foundation for new platform releases to come in 2022. We're thrilled to have this work now done and looking forward to some excited launches over the coming quarters. A few of the notable points about the quarter. We are pleased to welcome Julie Silcock as our newest board member. Julie is currently a senior advisor at CDX Advisors, and brings 35 years of capital markets and M&A experience with previous senior roles at Houlihan, Loki and Citigroup. As well, we would like to thank Colleen Johnston for accepting the role as our board chair. We are proud to be at the forefront of board diversity best practices as we are one of only a handful of newly listed companies on the TSX with women on our board and as our chair. On the awards front, Q4 was also named Best Places to Work, Best Places to Work for Diversity, and was awarded the Deloitte Fast 50 and Fast Enterprise 15 award categories. The impact of rising rates, inflation, and the war in Ukraine has caused significant market volatility. I want to share that we are not tone deaf to investors' current preferences for short-term profitability over growth. However, we remain steadfastly committed to the strategy we outlined during our IPO and the business we are building for the long term. We are well capitalized, very well positioned, and have a massive market ahead of us to grow into for many years. We are committed to our investments in sales, marketing, and R&D to help drive our growth, scale, and product innovation. We remain focused on creating long-term value for our shareholders by delivering strong organic growth, strategic M&A, and positive free cash flow in 2023. In terms of acquisitions, with private market valuations coming down, We believe we are really well positioned with a strong balance sheet to execute on this part of our strategy and look forward to announcing deals over the coming quarters. Before passing to Ryan to take us through the details of the quarter, I wanted to end with a couple of comments on the dynamics of our market and the macro trends driving demand. There are four main drivers of demand. The first is the simple fact that at the core of the market is the consistent and durable demand for investors and companies to engage with one another. No matter what the market conditions are, bull or bear, this core demand remains strong. We saw this through the 2008 financial crisis, through COVID, and through recent market dynamics. Today, there are over 40,000 public companies globally, of which 6% are our clients, creating a large and durable TAM for us to grow into for many years. The second is the changing economics of the sell side and how they service their clients, the buy side, and corporates. Over the last 10 years or so, we have seen the compression of trading commissions and the impact they have had on research and corporate access service levels. MiFID II impacted this further. This caused corporates and the buy side to become much more proactive in the market, driving needs for the tools that we provide. And during this time, banks also needed to find new ways to be more efficient in delivering their services. This set up the perfect storm for the third driver as we entered into this incredible pivot to virtual and digital that occurred over the last two years. This new way of working has become a necessity for all and has enabled banks to actually become much more efficient in serving their clients and corporates, expanding their reach and levels of engagement. We saw this happen early in 2020, and we can now see how much of a rewiring has occurred. The efficiency and reach of digital is undeniable and will remain a key driver of demand for years to come. The fourth driver is that in this new digital world, the need for data-driven decision-making has never been greater. With everything online and there's just so much data available, it is critical to use analytics to identify and prioritize the best opportunities in the market. And what we know very well is that in a data-driven world, platforms win. They win because they are able to understand the behavior of all participants across the platform at a very deep level and use this along with machine learning to deliver highly valuable insights to all stakeholders. With almost 2,700 corporates and over 13 million investors coming through our platform each month, we are uniquely positioned to deliver our powerful insights to all of our clients across the market. Combined, these demand drivers and market dynamics create tailwinds that we believe will drive this business forward for many years to come. And with that, I'll now pass it over to Ryan to take us through the quarter. Ryan?

Thanks, Daryl, and good morning to everyone. Thanks for taking the time to be with us on today's fourth quarter earnings call. As Daryl alluded to, we're pleased with our fourth quarter and annual results and their contribution to our overall strategy and vision. Revenue for the fourth quarter was $13.8 million, growing by 24% from the year-ago period, exceeding our expectations. That performance was driven by strength in both capital markets platform, growing by 21%, and by platform services, which grew by 73%, both on a year-over-year basis. In 2021, 83% of our capital markets platform revenue was subscription revenue based on long-term contracts, which results in high predictability and supported by an attractive margin profile. We saw continued progress in growing our top line this quarter. The strategy to acquire and onboard new customers, up and cross-sell existing clients, and deliver rich capital markets experiences to investors, banks, and management is proving out. At the end of the fourth quarter, ARR was $51.9 million, a 21.8% increase over this time last year. This increase was supported by adding a significant number of net new subscription platform customers, increasing the adoption of multiple products, and driving overall customer retention levels. Complementing the above, at the end of the fourth quarter, average revenue per account was 18,144, a 2.8% increase over this time last year. To dive deeper into this metric, ARPA that excludes our SPAC and IPO customers increased at 10% on a year-over-year basis. This is helpful to measure our upsell traction, given that our SPAC and IPO program is typically dilutive to ARPA in the early years, but accretive to ARPA once they roll off the program. During the quarter, we brought on 123 new platform customers and 612 over the course of 2021. I'm pleased by the additional logos onboarded in our core markets and continue to be encouraged by our sell-side investment banking clients who continue to return to our capital markets events business for their virtual and hybrid investor conferences and bus tours. While attracting new customers across all segments 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 the client. Our continued ability to retain customers is evidenced by the 95% controllable logo retention over the last 12 months. With a high retention rate, an increasing ARPA, and an expanding customer base, we are well positioned for future growth. As Daryl mentioned earlier, one of the key financial measures we focus on is gross margin expansion. In Q4 2021, gross margins expanded by 768 basis points to 59.6% as compared to Q4 2020. The progress made was driven by key cost initiatives in our virtual event segment, pricing initiatives, as well as leverage on our fixed cost base. As we have stated before, there are three things that will help us drive continued gross margin expansion. The first is shifting our underlying data feeds that power our products from a per-seat cost structure to one that offers Q4 fixed cost structure. The second is through the vertical integration of our virtual events platform, reducing our reliance on third-party vendors. And the third are the investments we are making in automation to optimize for scale across all of our product lines, which we expect to drive improvement over the upcoming quarters. In the fourth quarter operating expenses excluding depreciation and amortization, foreign exchange loss and other expenses total $12.3 million. Sales and marketing total 4.6 million or 33.5% of revenue coming in slightly lower than expected. Key areas of investments included growth of our direct teams, both in North America and in Europe, as well as a new dedicated customer growth team to drive up and cross sell opportunities. We plan to continue our investments in sales and marketing throughout 2022. Research and development came in at 2.8 million, or 20.7% of revenue, and G&A came in at 4.8 million, or 35.1% of revenue. Research and development came in slightly lower than anticipated, driven in part by the timing of additional headcount, whereas G&A came in slightly higher than anticipated as a result of costs associated with being a public company. And our adjusted EBITDA was negative 3.4 million or 24.4% of revenue for the quarter, achieving improved leverage as compared to the prior 2020 period adjusted EBITDA loss of 3.5 million or 31.9% of revenue. This is further evidence of our margin expansion strategy, a key component of our path to profitability. Our core working capital metrics remain strong and consistent with historical trends, ending with a working capital balance of 56.1 million. As of December 31st, 2021, we had $63.3 million in cash. Our operating cash flow for the fourth quarter was negative $4.9 million, driven primarily by the investments made across sales, marketing, and R&D. Our primary source of cash was from financing activities with proceeds from our IPO of $100 million Canadian dollars. As of December 31st, we had no outstanding debt with a total revolving facility size of $22.5 million. Our balance sheet continues to be well positioned to execute against both our organic and inorganic growth opportunities. Our long-term strategy is playing out as we expect it to, driving revenue growth and attractive margin expansion, which will ultimately deliver positive free cash flow in late 2023. To help you model out the coming quarters, here's how we think about the timing of investments and the benefit of key initiatives that should impact revenue growth and margin expansion. As revenue growth continues to be a key priority, we are seeing great traction on a number of organic strategic initiatives, including growth in our sell-side capital markets events business, geographic expansion, and new product launches. We would expect these initiatives to contribute financially in a meaningful way beginning in the second half of the coming year. We continue to expect to exit 2022 with gross margins in the mid to high 60s. Due to PASICOM investments, you can anticipate some variability in near-term quarters, with greater margin expansion in the second half of the year. Finally, with respect to M&A, we remain committed to executing on our acquisition strategy. We maintain a deep pipeline of active targets and feel that we are very well positioned to take advantage of market conditions. We look forward to updating you further in upcoming quarters. Overall, our financial performance for the quarter and the year provide us a strong foundation to execute in 2022, and I'm excited to report back to you on our progress in the coming quarters. That concludes my prepared remarks, so I'll hand it back to you, Daryl.