Q4 Inc.

Good morning, everyone, and welcome to Q4's first quarter 2022 earnings call. My name is Sarah Pearson, and I'm Q4's Director of Investor Relations, and I'm joined this morning by Daryl Heats, our CEO, Ryan Levenberg, our current CFO, and Donna DeWinter, our current Chief Operating Officer and incoming interim CFO, to review our first quarter 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 webcast 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 companies' 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 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 financial measures, including for reconciliation to the nearest IFRS measure. Please note that unless otherwise stated, all financial figures are in U.S. dollars. And with that, I'll pass it over to our CEO, Daryl Heats. Daryl?

Thanks, Sarah. And good morning, everyone. Before getting into our Q1 results, I wanted to take a couple minutes to speak about the value we provide to our customers and how we are seeing our platform strategy play out, both in terms of our products and services, but also in how this is impacting our financial profile today and into the future. At a high level, during the quarter, we continue to attract new customers across the business. and pursue our expansion efforts across our IR business while also making solid progress on our sell-side corporate access business and executing against our M&A strategy. Although Ryan will provide a deep dive on our financial results, I wanted to first touch on a few highlights from the quarter. We're happy to report that revenue came in just under $14 million, an increase of just over 23% year-over-year growth. We are pleased with this for Q1 as the majority of our growth typically comes later in the year. Gross margin was 57.4% for the quarter, a 300 bps improvement from Q1 last year. And when you look at the last four quarters, you can see the steady progression we are making on our way to mid-60s gross margin by the end of the year. During the quarter, we also saw customers purchasing more from us than ever before, contributing to a 3.2% ARPA growth, a nice increase over the previous quarter of 2.8% ARPA growth. In terms of OpEx, the investments in G&A now have largely been made and moving into the balance of year, you will start to see the percentages of revenue level off both in R&D and sales and marketing. We expect the operating leverage of the business to steadily improve over the second half of the year as we drive towards cashflow positive in late 2023 with positive EBITDA to follow. Just a quick comment on the impact we are feeling from inflation. something you are undoubtedly hearing across the sector. We are seeing costs rise across the board, particularly our labor costs, which we expect to be able to pass along to our clients through price increases. On that note, we are acutely aware of the impact inflation is having on our employees and have done what we can to ease their burden with the cost of living adjustment for our entire Q4 team. Finally, before getting to an update on our strategic priorities, in today's market, cash is king. And from this perspective, we ended the quarter with a very strong and healthy balance sheet, with more than $55 million in cash, giving us plenty of headroom to execute our strategy through to cash flow positive at the end of next year. Now on to our strategic priorities. We again demonstrated the durability and agility of our business model this quarter with accelerating growth of our customer base compared to the same period last year. Customer growth increased 12% year over year, ending the quarter with 2,673 platform customers. This in spite of the seasonality we have seen previously where Q1 is historically our lowest logo growth quarter for the year and the headwinds of a cooling IPO market along with an increase of M&A within our customer base. During this period, we also achieved a record 96% controllable logo retention, excluding M&A and D listings, up from 95% in Q4 21. The combination of one, our growing customer base, two, our record retention rates, and three, the record growth in average revenue per account really illustrate how we are expanding the share of wallet with our customers as they adopt more products across our platform. This tells us that our investments in technology, in our platform, and our people are really paying off. And we are executing quite well against our strategy to create differentiated value for our customers through the vast amounts of unique data that we amass and the insights that we can derive as a result. Our end-to-end platform and the resulting data it generates creates a distinctive moat for our business, which in turn provides the growth and agility I referred to earlier, regardless of market conditions. In terms of our customer expansion efforts, from the outset of this business, our purpose has always been to help our clients win in the capital markets, which is really about helping our customers execute exceptional investor relations programs and connecting the right investor to the right company. To deliver on this, we have been expanding our platform to support a wide range of use cases across our corporate and sell-side customers. We are really pleased at how we have been able to start connecting our products, our data, and our insights to help companies understand their investors better and communicate more effectively. As a result of the investments in our technology platform, specifically the unification of our data and the vertical integration of our products, we are putting more valuable solutions in the hands of our clients and supporting them with our team of IR professionals. We have been executing against this strategy for numerous quarters. We are now really starting to see it come together with achieving record expansion sales to our existing clients in the first quarter. Our customers are renewing at higher rates and buying more from us than ever before. In terms of partnerships, it's wonderful to see the continuous evolution occurring at the New York Stock Exchange to meet the needs of corporate issuers. We take great pride in having an expanded presence in the new enhanced NYSC issuer services program. This program offers new and existing listed companies access to a suite of complementary products and services, which represent best of breed IR solutions and services, and truly represent the essential components for an innovative and effective IR program. Q4 has been a key part of the issuer services program since 2012, providing web hosting and webcasting services. In the past year, we have proudly partnered with the NYSE on hundreds of IPOs and SPACs. We are thrilled to now play an expanded role in this revised program, offering a broad list of virtual events that go beyond quarterly earnings calls, including but not limited to investor days, ESG events, corporate town halls, and partnering with the NYSE on to host in-person events at the exchange with the benefit of video broadcasting. As we've talked about in previous quarters, our roadmap is focused on unifying our platform to serve all of the critical workflow and data needs for each of the three sides of the market, corporates, the sell side, and the buy side. As we connect our platform, we believe this will continue to help us drive increased adoption with our clients, along with improved renewal rates and revenue per account. I'm happy to report that this quarter had this happening with increased customer adoption of multiple products across the platform, improved ARPA, and higher renewal rates. Digging into the events side of the business, the vertical integration of our events business continues to be one of the key drivers of both our product innovation and our growth margin expansion. During the quarter, we continued the rollout of our new corporate earnings platform with almost half of our customers now migrated onto the new platform. Year to date, we have now delivered 734 earnings events with over a thousand events in total on this new platform. Keep in mind, this migration is one of the three key drivers to our gross margin expansion strategy. In addition to this, following our fourth quarter earnings in March, we formally launched our video earnings product, which we are using here again today. We've seen a great response to this product, and we're excited about the potential for our progressive customers to begin using this format in coming quarters. In terms of our capital markets event business, we continue to execute on a number of sell-side events, including fully virtual as well as hybrid and in-person events. We continue to see very strong demand from the sell-side for our investor conference platform and a wide range of use cases. Resonating most with clients is the ease of our technology and how our end-to-end solution, which includes meeting registration and scheduling, along with fully integrated video capabilities, really enables our customers to consolidate existing vendors. We're focused on enabling a free flow of data exchange for our clients between our platform and their sell-side CRMs. Finally, our web extensions related to ESG and also accessibility continue to do very well. Both are important areas for growth in our web business. From a capital allocation perspective, I wanted to provide clarity that our first priority is continued investments in our organic growth, followed by inorganic growth opportunities. And the third is to ensure that we operate with financial flexibility in an environment where we believe our stock is clearly undervalued. On this point, we put in place a normal courts issuer bid at the end of March to give us the flexibility to repurchase stock based on management's ongoing assessment of the capital needs of the business, the market price of Q4's common stock, and general market conditions. Finally, in terms of M&A, we continue to be focused on executing our strategy here and have a number of engagements underway. Being disciplined during these markets is more important than ever, and we want investors to know that we are focused on bringing only the best deals forward for the business. Before closing these initial comments, I would like to take this opportunity to speak to the recent management changes that were announced earlier this month. Ryan Levenberg, our current CFO, will be leaving Q4 at the end of May to head back to an earlier stage startup. I wanted to thank Ryan here for all of his contributions and wish him the very best into the future. Equally, I'm very excited about having Donna DeWinter, who has been with us for numerous years in the COO role, take on the interim CFO position. Her many years of CFO experience will truly be an asset for the business, and I look forward to us working closely on executing our strategy and delivering results over the coming quarters while we search for our long-term CFO. And with that, I'll now pass it over to Ryan to take us through the quarter, and then Donna will join for future outlook and our Q&A session. Ryan?

Thanks Daryl and good morning to everyone. As Daryl alluded to, we're pleased with our first quarter results and their contribution to our overall strategy and vision. Revenue for the first quarter was 13.9 million, growing by 23.1% from the year ago period. This performance was largely driven by expansion revenue initiatives and sales performance of platform services. Capital markets platform grew by 21.4% and platform services grew by 47.8%, both on a year-over-year basis. Our revenue base continues to be highly predictable based on long-term contracts. Over the last 12 months, 88% of our capital market platform revenue was subscription-based. This quarter was also our highest record of expansion sales driven by our newly ramped customer growth sales team, delivering increased customer up and cross-sell. At the end of the first quarter, ARR was 52.8 million, an 18.1% increase over this time last year. New bookings continued in the first quarter, adding 87 new customers who joined at a higher than historical average contract value, indicating strong progress with our bundled sales approach. Complementing new bookings, our existing customers continue to purchase new subscriptions, expanding engagement across our product suite. And we experienced our strongest controllable logo retention quarter of 96%, which directly resulted in more ARR retained in the business. Offsetting this, in the beginning of 2022, we saw slower SPAC and IPO markets. This impacted ARR bookings to a degree, but did not have a meaningful impact to revenue growth as we were able to focus our efforts on driving growth through the customer expansion strategy. At the end of the first quarter, average revenue per account was 18,404, a 3.2% increase over this time last year, and an increase in growth rate compared to the fourth quarter. As we have mentioned before, our customer growth team had the highest sales on record, driving further adoption of subscription products and expansion of recurring revenue. We see our platform strategy playing out as anticipated, with clients buying a higher number of services and driving increased retention, which is proving the value of our integrated platform. To better understand our ability to expand revenue within our existing client base, we wanted to provide some additional context for the level of product tax adoption across our corporate customers. Historically, we had looked at product adoption on a logo basis, which in Q1 increased to 42% for customers with two or more products. Because we also see our clients expand within product categories, the best way to capture this ARR contribution for customers that use two or more products is looking at it on an ARR basis. The chart on this slide provides this view over the last three years. As of the first quarter, 65% of our ARR is generated from customers that use two or more products, which shows our ability to execute on the customer expansion strategy. Moving forward, we will be using this revenue metric as it more accurately illustrates the value of customers adopting more of the platform. We ended Q1 with 2,673 platform customers. During the quarter, we brought on 87 new platform customers. The slower logo growth was expected in our seasonally slowest quarter due to client budget cycles. This quarter, macro conditions led to higher uncontrollable churn from greater levels of client consolidation, as well as lower new sales due to the decline in SPACs and IPOs. In the first quarter, gross margins expanded by 300 basis points to 57.4% compared to the same period last year. We continue to be focused on three pillars that will help us drive continued gross margin expansion. The first is shifting our underlying data feed to a fixed cost structure. The second is through the vertical integration of our virtual events platform. And the third are the investments we are making in product automation with how we work with our customers. The progress we made against our gross margin expansion this quarter was driven by the webcasting platform migration, as well as increased scale in our CRM products. As we communicated in prior quarters, while we expect this year to exit in the mid-60s, we do expect some fluctuation quarter to quarter, and this quarter is an example of that. This was primarily driven by the additional demand for platform services. In the first quarter, operating expenses, excluding depreciation and amortization, foreign exchange loss, and other expenses, totaled $15 million. Sales and marketing totaled 5.1 million, or 36.9% of revenue, an increase of 0.8 million as compared to Q1 last year. We've been continuing our investment in go-to-market initiatives to execute on our strategic growth plan. Research and development came in at 4.1 million, or 29.6% of revenue, compared to 25.1% of revenue for Q1 last year. As Daryl mentioned, we have been increasing our investment in the vertical integration of our virtual lens platform, as well as driving innovative new products. G&A was $5.8 million or 41.4% of revenue. We expect G&A expenses to level off as a percentage of revenue into the back half of this year as we scale and find leverage on the costs associated with going public. G&A leveling off as a percentage of revenue will be a component to watch as we move towards profitability. Our adjusted EBITDA was negative 7.1 million or 51.3% of revenue for the quarter. This reflects the greater investments made throughout the quarter to support our long-term strategy. We feel confident that these investments we are making in our platform and product set are proving to be valuable to our customers. And we are now investing in our go-to-market organization to get what we have built into the hands of more customers. Our working capital metrics remained strong and consistent with historical trends, ending with a working capital balance of $50.7 million. As of March 31st, 2022, we had $55.8 million in cash, and our operating cash flow during the first quarter was negative $7.6 million, driven primarily by the investments made across sales, marketing, and R&D. As of March 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. As Daryl mentioned earlier in the call, this will be my last earnings with Q4. It's been tremendous to be a part of the business's growth and transformation over the past seven years, and I look forward to watching the company continue to execute on its mission. I know I'm leaving the position in good hands with Donna taking over my role as the interim CFO. I've had the opportunity to work closely with Donna on operational and financial aspects of this business since she joined and feel confident that she will do incredibly well in executing the CFO mandate. And with that, I would like to pass it over to you, Donna.