Q4 Inc.

year-to-date capital markets platform revenue coming from recurring and long-term customer contracts ensuring our core business remains strong and intact. At the end of the second quarter, ARR was 53.3 million, an increase of 12.4% year over year, driven in part from 107 existing customers purchasing additional subscriptions with us. It is exciting to see so many customers increasing the scope of their relationship with us. Our investment into the development of additional subscription offerings that are valuable to our existing clients coupled with the ramping investment in our expansion sales capabilities has fueled this growth channel. As well, our bundled sales approach focusing on selling platform has continued to work very well with annual contract value of new sales increasing in both North America and Europe. However, the acquisition of new logos slowed as a result of tougher market conditions that dramatically impacted the pace of new IPOs in the market and corporate customers delaying their IR spending. Average revenue per account, or ARPA, was $18,642 at the end of the quarter. This represents a 4.1% increase over the prior year. and also generates an increased growth rate compared to the first quarter's 3.2%. Expanding our offerings into the existing customer base contributed the majority of the ARPA growth in Q2 and delivers early ROI on the investments to build that expansion capability. The combined efforts of our expansion sales and our client success team produce the highest quarterly increase of ARPA on record. Additionally, our team continues to enact renewal billing increases to ensure we can absorb the increasing inflationary costs while maintaining the highest quality service levels. Product adoption continues to move towards customers leveraging two or more products. This quarter, 65.4% of ARR was generated from these customers, up from 63.2% a quarter ago. These clients also have a strong propensity to engage with us for value-added services, supporting overall revenue growth. Our integrated platform strategy is evolving as anticipated, as shown in the chart, with clients buying a higher number of solutions and services, driving increased value in the hands of the clients and increased retention for us. It is a true driver of ARR and ARPA. As customers adopt additional products and gain unique value through our platform approach, we are further entrenched in the customer workflow. This creates a strong moat around our core business and will help us retain customers. In the second quarter, we saw the addition of 79 new clients, of which 61 became subscribers. Our quarter ended with 2,685 customers on the platform. A notable strain on our ARR growth and retention during the quarter was uncontrollable churn tied to M&A in the public markets causing customer consolidation. This trend continued from Q1 when we saw the majority of our revenue churn come from these uncontrollable types of events. However, our controllable logo retention remained strong at 96%, consistent with last quarter. Our low churn levels supports the durability of our business and our ability to be valuable to customers in tough economic times. Looking at gross margin in the second quarter, we saw cost impacted by inflation, which, when combined with lower revenue, slowed our gross margin expansion. resulting in gross margin for the second quarter being relatively flat for the comparable quarter last year at 56.5% and 56.8% comparatively. It decreased slightly in sequential quarters, primarily because of inflation, and that unfavorable trend is being addressed with additional margin expansion initiatives. We are still tracking to exit 22, with mid 60s gross margin and mid 70s next year. We remain focused on the original pillars of our gross margin expansion strategy, but we feel that they alone are insufficient to deliver the margin outcomes we expect. The first of our original pillars is to consolidate and reduce the fixed cost of our data and other direct costs. On a percentage basis, these costs reduce over increased revenue volume, but we have also targeted an assessment and rationalization of providers to generate absolute savings. The second pillar, which is the vertical integration of our virtual events platform, delivered significant progress this quarter. We completed the migration of our North American customers and will continue with the migration of our European customers over the next quarter. The third pillar relates to investments we are making in product automation to improve the customer experience with less manual effort for us and the customers. As Daryl mentioned earlier, the launch of the website management app is a perfect example as it has made it easier for customers to manage their websites while also making it much easier for us to manage these requests. But to help us realize our gross margin expansion, we have added two additional pillars. The fourth pillar is an expansion of our workforce into new lower cost geographies where we don't currently operate while remaining intensely focused on service excellence. This hiring strategy is underway and will impact COGS in Q3 and beyond. And the fifth and final pillar is to increase prices to offset the negative impact of inflation on our costs while maintaining our ability to provide premium customer service. These price increases began rolling out in Q2 and will positively impact Q3 and future quarters. As you can see, maintaining our customer base through service excellence is our paramount strategy. We also believe that a strong balance sheet and income statement creates a sustainable ability to serve these customers. In the second quarter, Operating expenses, excluding depreciation, amortization, foreign exchange loss, and other expenses, totaled $17.3 million. This quarter's operating expense was at our highest planned level of spend. The leading investments we have made in sales and marketing and research and development this quarter provide the foundation for our future growth, with a solidified infrastructure and the ability to scale our platform sales without further investment. Sales and marketing costs were 6.5 million or 47% of revenue, an increase of 2.1 million compared to Q2 last year. The increase included necessary investments in our expansion and European sales capabilities. Research and development came in at 5 million or 36% of revenue, an increase of 2.2 million compared to the second quarter costs last year. The increase supported the continued investment in both the improvement of current products within our capital markets platform and the development of new offerings. P&A for the quarter was $5.8 million, or 42% of revenue for the quarter. This increased $1.2 million from the comparable period in the prior year when we were private, primarily because of the expenses associated with operating as a public company. G&A expenses will level off as a percentage of revenue into the back half of this year as we scale and find leverage on our costs associated with going public. Our adjusted EBITDA was negative 8.7 million or negative 63% of revenue for the quarter. This reflects the high investment levels associated with a hyper growth strategy that we feel is challenged in this macro environment. As we execute our accelerated planned profitability, which I'll touch on in a moment, this loss will narrow considerably over the second half of the year and become positive in 2023. In terms of our balance sheet, our core working capital metrics remain strong and consistent with historical trends, ending with a working capital balance of $40.2 million. As of June 30, 2022, we had 45.1 million in cash, net of net operating, negative operating cash flow in H1 of 18 million. As described, this is primarily the result of investments made across sales, marketing, and research and development. As of June 30th, we had no outstanding debt with a total revolving facility of 22.5 million. our balance sheet continues to be well positioned to execute against both our organic and inorganic growth opportunities. Our intention is to maintain that strength. We have weathered previous cycles of challenging macroeconomic conditions. We recognize the durability of our business model and the importance of adapting the pacing of our strategic priorities to combat the headwinds we are facing. As such, we are taking deliberate measures to shorten our timeline to profitability through enhanced focus on cost management and business efficiency. I wanted to reaffirm that we are still expecting gross margins to exit this year in the mid-60s and in the mid-70s for 2023. As I mentioned earlier, our strategies on this front are well underway and will impact Q3 and Q4 in an effective manner. Of equal importance to EBITDA is optimizing the return on OPEX with initiatives for improving sales efficiency and utilizing low-cost geographies to drive down OPEX, expanding our operating leverage through the remainder of 2022 and 2023. This will result in the business being cashflow and EBITDA positive in the second half of 2023, ahead of our earlier expectations of reaching EBITDA positive in early 2024. Accelerating this path to profitability will ensure the business remains well capitalized. giving us the ability to singularly focus on executing our organic growth strategy while ensuring we have ample capital for inorganic opportunities. And with that, I'll now pass it back to Daryl.

Fantastic. Thanks, Donna. That was great. And with that, we'll now switch over to the Q&A session. So I will pass it back to Sarah to kick us off. Sarah?

Thanks, everyone. With that, we will have our first question come in from our analyst audience. We have Kevin McVey at Credit Suisse.