Tiny Ltd.

Good morning and welcome to the tiny limited second quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer session. If you'd like to ask a question during this time simply press star and the number one on your telephone keypad. If you'd like to withdraw your question it's star and then the number two. Before we start we'd like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Tiny and its business and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance and business prospects and opportunities. Such statements are made as of this date hereof and TINI assumes no obligation to update or revise them to reflect events, disclosures or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements and information and future-oriented financial information section of the company's public filings, which include, without limitation, Tiny's MD&A and its earnings press release issued today for additional information. I'd like to now turn the call over to the executive team from Tiny for today's earnings call.

Hey, guys. Good morning. Good afternoon to some. You've got Jordan Tobe here. uh recently appointed ceo of tiny um yeah it's great to be having this this is our first earnings call as as tiny it's also our first earnings call for for mike and myself um you know we're both new here i figured this is a good opportunity to provide a bit of an intro um you know i wanted to highlight that you know this is our commitment to being transparent and upgrading our disclosure and kind of interacting with with our investors and the investor community. And we're really excited to do this. So welcome, everyone. I'll try to keep this short and sweet. You know, I've probably done this intro with some of you before. And if you heard me at the AGM, I did it. But I'll do the abridged version. I was appointed CEO of Tiny on June 6th. Prior to that, I was at WeCommerce, first running corporate development and then a CEO. um you know so i've been with tiny and its predecessor for about three years at wecommerce i led the acquisitions of clean canvas no commerce repeat and uptime um you know i've kind of been working away in the background for a long time and i'm really honored and excited to take the role prior to that i worked at constellation software first for the founder of the business mark leonard and then in a portfolio running acquisitions, integrations, and managing a portfolio of vertical market software companies. And before that, I spent probably far too long in the mid-market group at KPMG Corporate Finance, really cut my teeth on M&A, working for large strategics, doing corporate carve-outs, private equity, VC, founders. sold everything from gummy vitamin factories, potato processing plants, radiology clinic software. Um, and yeah, like, I mean, you know, I started my career as an accountant, I'm a CPA and, and again, just, just really excited to get going here and, and, uh, and to be working with Mike and I'll pass it over to him for his introduction.

Great. Thanks, Jordan. As Jordan noted, I'm also quite excited to be part of this journey. I was appointed the CFO of Tiny on July 3rd, so just after the quarter ended, but excited to be here today to talk about our financial results. I come from a business called Lifespeak, where I was also the CFO of another public company listed on the TSX, and I helped successfully lead that IPO in 2021. Previous to that, I had CFO experience at a business called Mobile Clinic, where we raised a significant amount of capital to build out a business across Canada. which we ultimately exited to a sale to tell us. And I also bring over a decade of capital markets experience in investment banking and M&A, having led the technology media and telecom group at Scotiabank. So with that, Jordan, why don't we get into the more formal part of the call?

No problem. So even though we both just started, it's been a very busy quarter for us. You know, I'll start by highlighting that we completed our equity raise with Hosking Partners at the beginning of the quarter. This allowed us to acquire Medianet Solutions, an Arizona-based provider of special education software, a business that's 98% SAS revenue, you know, really highlighting our commitment to looking for more businesses like that. You know, strong recurring base, high cash flow, really, really strong retention. You know, I also wanted to highlight that we repaid about $16 million of debt in the quarter, and we sit at net debt of just under $100 million. You know, you'll see our commitment to reducing that debt load and managing the balance sheet over the coming quarters, you know, as it gives us more flexibility to kind of operate and pursue our acquisition strategy. Something I wanted to start highlighting in these calls was just kind of, you know, picking two or three of our portfolio operating companies and giving a nice operational highlighter or highlighting some accomplishments. And, um, you know, the three I wanted to highlight this quarter were, you know, metal lab was named a finalist for fast companies, design company of the year. This just highlights the exceptional work they're doing. We're really proud of our, of that business. And it has the knock-on effect of being a really good marketing tool and allows us to win more business. Meteor, which is an open source JavaScript development framework, just released a massive update. Meteor 3.0, big upgrade to their architecture, basically modernizes the platform. Again, really proud of the work they're doing. Congrats to the whole team. And we're excited for the growth we think that's going to come from that. And finally, you know, a business that we acquired about six months ago, Repeat, you know, with the intention of kind of working closely with Stamped, we just announced that Stamped and Repeat were merging. We think this was an obvious strategic decision. We think the combined platform really lends itself well to pursuing higher ACV customers. You know, in particular, the combination of loyalty and retention is just something we think can drive meaningful revenue for our customers. So really excited about those three things. I'll pass it over to Mike to start talking financials.

Great. Thanks, Jordan. First, I'll start off on revenue. We had a decent quarter. especially in comparison to Q1, where we grew by about 4%. Comparing year over year, there was about 7% growth on a pure revenue basis. However, there was some impact with the timing of the RTO in Q2 of 2023, which does impact that number a little bit to the positive on our side. When we look out to Q3 though, We will start having more clean comparative quarters, which will be important for comparative purposes year over year and quarter to quarter. We've seen good revenue growth. However, operationally, we're focused on increasing revenue growth as we look forward. Getting in a little bit further to what drove the increase in Q2 2023, our creative platform area saw an increase of about $1.7 million compared to Q2 of 2023. This was due to the successful landing of a large enterprise deal in the quarter, and it was a very strong result for that group. We also had some attributable growth in the software and app segment. When we think about the first six months, again over the same period of 2023, we do have an increase that is attributable to the full quarter inclusion of the software and app segment in 2024. However, still showing promising growth year over year, even on a normalized basis. Jordan, is there anything else you'd like to add around revenue?

Patrick Corbett- yeah I just I just add that you know if you're looking at the six months, especially for something like digital services, you can you can see the effort. Patrick Corbett- Or the results of our efforts to kind of diversify that revenue on you know we made a commitment to to diversify some of the startup work that we were doing with more mid market and fortune 500 companies. Patrick Corbett- So you're seeing that increase compared to 2023. I think, you know, from our view, the market is improving quite a bit. You know, and ideally, we'll keep you updated on the performance of that digital services business. The software and app segment, you know, you're looking at a quarter in 2023, which is a bit, you know, it's a bit, I won't say messy, but it's a bit different considering that it doesn't include a full quarter in the first quarter of 2023. But we are seeing decent growth there. We've added some acquisitions, you know, namely clean canvas, repeat. And then in the creative platform, you know, we are seeing some really good progress on the enterprise side. The market has been soft transactionally. And in particular, dribble, we made the conscious decision to remove the paywall there with the intention of increasing interactions, increasing job inquiries, making the experience on the site better. And, you know, this is already having a big impact. We're already seeing interactions go up. And this is all in the service of looking for additional revenue opportunities through transactions. You know, and we'll have more to tell you about that in the coming quarter. I'll pass it back over to Mike.

Great. One of the other items that we want to keep making sure that we're reporting on, bringing these calls, are some financial KPIs. One of them would be recurring revenue. This is a key area of focus for the business. Jordan mentioned the acquisition of Medianet at the start of the call that closed during the quarter. This was an excellent acquisition for our company. provides a 98% SaaS-based subscription revenue model. This highlights our commitment and strategic focus to acquiring recurring revenue type platforms. The Medianet business, while a strong contributor of recurring revenue, is not a significant contributor to revenue overall, however, does provide us an interesting platform and opportunity for growth. Recurring revenue in the quarter was $9.6 million, which made up about 19% of our total revenue, a slight increase when compared to the same quarter of last year. But again, there is some impact of the full quarter inclusion of the software and app segment, which is a significant portion of our overall recurring revenue. I think, though, you can pick up on the theme of what we're trying to get to, both from a reporting perspective and from an operational perspective. And recurring revenue type businesses are important. And as we think about our acquisition strategy going forward, they'll play a key role. And the median net acquisition highlights that. We move on to EBITDA. Again, certainly an area of the income statement or a calculated number that has some significant noise from the timing of the RTO share transaction in 2021. Mayor Mrakas, 23, however, without the game we've seen significant efficiency and increased performance at the even dollar. Mayor Mrakas, This is also a number where we're going to be looking to seek continuous improvement as we roll forward in the year. Mayor Mrakas, largely due to the improvement of the income statement on the cost side so as we talk about revenue growth and see opportunities for revenue. James Rattling Leafs, increases and operational really operational efficiencies are going to be a key focus for us. James Rattling Leafs, Because, ultimately, even the and cash flow are very important to this business, as we think about you know servicing debt. James Rattling Leafs, and finding opportunities to reinvest capital so you'll see some improvements at the thought line from us going forward again largely due to our continued focus on operational efficiency so decent quarter overall. and more to come from us here. Another one of the metrics that we've added this quarter from a reporting perspective and from the perspective of disclosure and providing some additional information is about adjusted free cash flow. And we've done this on a number post debt servicing. Certainly hearing from a lot of investors and the analysts who cover the stock, there was a desire and a hope that we would provide more disclosure in and around our ability to service our debt load. This is important both from the perspective of our own operations and ensuring that we are providing good strong quality of information to investors. So while the numbers don't look super impressive this quarter, I think it's important for us to begin to provide these numbers, this level of detail as well, and continue to provide this on a quarter to quarter basis going forward. As you can see, we made significant debt repayments during the quarter and also managed scheduled debt repayments that were higher this quarter than they had been in previous quarters. That scheduled debt repayments number will level out as we move through the balance of the year. It will be back to a more normalized number. Also, our free cash flow in the quarter is significantly impacted by the timing of some of the transactional nature of the business. We mentioned that large enterprise deal that was a successful addition to the creative platforms area. Well, the timing of that deal also impacted significantly the free cash flow and our adjusted free cash flow because it was Q2 revenue, but paid to us in Q3. So while we've now collected on that business, we'll see a bit of a reversal in the free cash flow calculation, given the nature of the impact on working capital. So again, new information this quarter, new disclosure. We will continue to disclose these numbers. You'll continue to see improvements from us in these numbers, given our focus on operational efficiency. And we want to make sure that we're highlighting the fact that we're adequately servicing the debt that we had and making significant principal repayments as well. So that's an important part of the plan going forward. And Jordan's going to touch on that a little bit more on the next slide.

Yeah, I would just add, you know, just also on the free cash flow. You know, this does bounce around quarter to quarter, especially given, you know, what Mike outlined there. You know, these enterprise deals, especially the large one that we signed in the creative platform in this quarter, and given the nature of some of the digital services, collections, and receivables that we have, So, you know, we're focused on long-term trends. We're focused on long-term free cash flow generation. We want to make sure we're reducing our interest expense. We want to make sure that we're paying down our debt, you know, both scheduled and voluntary. So, you know, now that we have this, you know, this is kind of the long-term key metric in North Star that we're focused on. And, you know, I would just, yeah, I'm excited to just track it over the long term. Um, you know, touching on debt, I talked about it on the first slide. Um, you know, I really just wanted to highlight the commitment to managing the balance sheet, um, showing that we're paying attention to our leverage levels and we've included this, you know, an illustrative calculation in that debt to adjust to the, which is what our lenders are looking at. You can see it coming down to a level that, um, that we think is much more comfortable and that will continue to go down. In the quarter, we paid down $16 million of total debt. And, you know, this is generating significant interest savings for us. We're committed to continuing that. We have both scheduled and voluntary payments coming up. And I'm excited to just keep reporting on this. And, you know, finally, You know, if you're at the AGM, I went through the same priorities and the same things that I wanted to keep talking about, or, you know, I kind of posed this goal, you know, what do I want to be talking about at next year's AGM? And I will say this again, because I think it's important, you know, our strategic areas of focus are pretty simple. We want to increase cash flow. How are we going to do that? We're investing in organic growth. And we're controlling our costs and looking for savings where it makes sense. That doesn't mean that we're cutting costs for the sake of costs or cutting costs, you know, where we think it hurts the business, but we do think there are opportunities. We're focused on finding really great acquisitions that fit our criteria, our culture. We're focused on recurring revenue. We're looking at, you know, where we can find really good opportunities to get Good value tuck-ins for our businesses, things like uptime, repeat. You know, we're seeing tons of opportunity in the VC class of 21 and 22. You know, they've raised money. They're not going to raise again. They view us as a great home for their business. They believe that we can offer them some strategic value. And, you know, that's really resonating. So we're trying to be opportunistic there. know i'll highlight again that you know we've said this a number of times in the presentation but we're dedicated to managing and reducing our debt levels um you know this is just this is twofold like it increases our cash flow and it gives us more flexibility to do acquisitions and and operate freely um and finally we think this is important and it touches on the big tagline at the top but you know we we're focused on incentive plans that really align to our long-term goals and that's and that's really generating really good organic growth and focusing on free cashflow generation. And I think all of this is in the service of ensuring that tiny is this great long-term home for founders, for companies, for employees. Um, and it's something we are, we are hyper focused on and we take great pride in, you know, and, and I have conversations with founders, you know, they, they've reached out to us or when we reach out to them, they're excited to potentially be a part of Tiny and it's not something that we take lightly. So it's something that we think about all the time is how do we make sure that story and that package that we can offer a founder is aligned to our objectives and makes this the best place for them to end up. How do we continue to be the acquirer of choice for these people? I'm happy to keep reporting back on what those things are and the experiments we're running and how we're designing incentives, but it's something that we think of as one of the biggest priorities. So thank you all for joining us. We are excited to continue doing these and being transparent with all of you. And we can open it up to questions. Thank you.

Thank you. As a reminder, please press star followed by the number one if you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak. Our first question today comes from Daniel Chan with TD Security. Please go ahead. Your line is open.

Hi. Good morning, guys. Thanks for doing this call. Really appreciate it. Thanks for the color on the capital deployment strategy. Just wanted to double click on that a little bit more. are you prioritizing any one of those initiatives more than the other? So for example, like, are you going to prioritize debt repayment, pay that down before you focus on MNA and organic growth? And maybe a second part to that question is like, how are you thinking about the source of that capital? Should we think more about like organic cash flows or is it going to be potentially more equity raises? Anything like that would be helpful. Thank you.

Yeah, I think it will depend where we were doing it on a case by case basis right now. If we think that there's a really good platform acquisition that we have a high degree of competence in that's at a really, you know, really fair price and it hits all the notes, I think, you know, we would be silly not to prioritize that and look to make sure the structure of that transaction was appropriate. So, you know, I think if it's big enough, We've received interest from partners that they would participate in a raise, so that is available. But it depends on the size. I think for smaller acquisitions and ones that are highly accretive or where we see great value and the price is good, we do have room to do those types of acquisitions. Yeah, I know a depends answer is not what you're looking for. Maybe it's kind of the standard. But right now, you see that we're focused on paying down debt, but we are not stopping our search for great acquisitions, and we have a great pipeline.

Okay, thanks for that. And then you mentioned in one of your slides that – sorry, go ahead, Mike.

Oh, Jordan, I was just going to add, I think Dan, importantly, right. What Jordan's trying to get at is, you know, ultimately sort of rights, right. Sizing that, that level, it does provide, you know, some of the flexibility that you're talking about, or you asked about, right. So when we get to the spot that we're most comfortable with, then ultimately, you know, it provides a bit more flexibility for us, you know, to deploy capital in a variety of different ways. So I think that's, that's really the focus, but again, it's all sort of in the nature of keeping consistent with the theme of how the business has been built to date. Right.

Yeah, that's helpful. Actually, I was going to ask, what is that level for you guys? You mentioned one of the slides that at 3.1 times you're getting closer to a level that you're comfortable with. What are you targeting, let's say, over the next year?

Yeah, I'll take that one. And look, getting that number into the sort of two and a half range at the top, sort of probably the high end is ultimately ideal, right? We are very fortunate to have a very good cash flowing business. And we do have some, you know, scheduled principal repayments in the coming quarters. So getting that to the level that we're talking about is not necessarily going to be a challenge for us. You know, there is a construct around, you know, capital deployment to, you know, repay debt versus redeploying it in other areas of the business or, you know, other acquisition opportunities that Jordan sort of highlighted. But I think if you can see from that slide, it's pretty consistently been going down over the three quarters that we highlighted. And I think that's a trend we're going to want to see continue for the next few quarters. And ideally, we get to 2.5. The business can easily handle that. And maybe we can even get it lower. But again, as we're thinking about ideal targets, we'd want to be sort of 2.5 on the high end.

That's helpful, Mike. I want to dig into the software business a little bit. Merchant count at Shopify was healthy this quarter, and that's usually translated to stronger results in the e-commerce business. We're estimating that software and apps revenue declined organically this quarter. Can you help us reconcile the strength from Shopify, especially with the strong merchant growth that they've had this quarter and what seems to be weak organic growth in that segment?

Yeah, I think I can explain that pretty simply. The theme... the theme business is somewhat seasonal and, and, you know, even with merchant growth, we see a lot of fluctuation month to month, depending on, you know, uh, stronger SMB growth or certain, certain kind of verticals or, you know, our piracy campaign either slowing down or speeding up based on Shopify's, um, interaction with us. So that can definitely drive some, fluctuation quarter over quarter. And really, that's what's driving some of the organic growth decline from Q2 to Q1 in the software and app segment, especially as we looked at something like Clean Canvas, where we kicked off a big license enforcement campaign and we recovered quite a bit of revenue in Q1 and even in archetype, a similar thing. And then we don't have that recurring Q2.

it has a big impact so it's you know it's kind of driven by seasonal and license enforcement thanks ron i'll pass the line thank you again as a reminder is star one if you'd like to ask a question our next question comes from max ingram with kind of continuity please go ahead your line is open hey guys thanks for taking my questions so my first one

you guys sort of touched on it briefly in your prepared remarks on the large enterprise deal within creative. Um, so my question is, can you give us a bit more color on how the shift to enterprise is going more generally for the overall business and then maybe on the digital services side and the creative sides individually?

Yeah, sure. Um, I'll talk a bit about the creative side. Like, so this is specifically in creative market. Um, You know, generally it's going well. You know, they have a really big catalog, well-diversified catalog that keeps getting bigger and bigger. And actually these enterprise deals are a great boon to creators because they are, you know, they provide a really big payday that actually would be much, much larger than kind of one-off transactions that they might be used to. Sales team is busy. Pipeline is strong. So, you know, we're... we're quite optimistic about the business. Like it's, it's, it's an area that's growing and it's offsetting some of the decline in the more transactional or market, uh, driven revenue and creative market on digital services. We're, you know, we're kind of seeing the first, uh, the first shoots of that diversification spring up here and, um, yeah, like it's going well, the market is turning, we're getting more diversified business and, uh, Yeah, I mean, you can see that in the year-over-year increase for that six-month period. So, yeah, it's going well.

Okay, that's helpful. Thanks. And then my second one is on the M&A topic, just an extension of that. My question would be, are you looking to expand your acquisition verticals, or are you going to kind of continue to play with what you've done historically? Because I know there's a focus on the recurring revenue side of things, but then I also know you know, something like AeroPress has been a great business for you. So any color there might be helpful.

Well, I think, again, I think it'll be, it'll be opportunistic. We are, we are being, you know, like we're all, we are getting quite a bit of inbound, but we are looking to what we believe we do well. Right. So I think, I think if we believe that we have a competitive advantage or a best practice or some kind of, some kind of unfair, uh, you know, knowledge. Those are acquisitions we would definitely consider. I think we've learned a ton from the Aeropress acquisition. We have a pretty good strength in community businesses. We think we know what to do, what not to do. We've learned some lessons. The acquisition of Letterboxd hits home on something that we think we understand really well. Even though there's a priority on recurring revenue, I think the places that we sit today and even tangential verticals or tangential spaces or tuck-ins for those businesses are definitely areas we would consider for the right price, the right management team, the right opportunity. So I wouldn't rule those out.

Okay. That's helpful. Thanks. And then the last one for me, it's great to see the long-term leverage target. Is there a target model for growth or margins that you guys are thinking of pursuing or any plans to establish one down the road?

I think not at the moment, but it's something that we would definitely consider disclosing and work towards and we can keep you posted. It's a bit difficult right now considering how diversified the portfolio is. Internally, I think we've got them for the different types of businesses, but it's it's a bit more difficult at the tiny level to kind of just throw one out at this point right okay fair enough i will pass the line thanks for taking my questions thank you thank you and as a final reminder it's star one if you'd like to ask a question today

We have no further questions in queue, so I'll turn the call back to the executive team for any closing comments.

Thanks guys, thanks for joining. We look forward to hearing from all of you. Please reach out. We're happy to chat with you if you have any additional questions and we look forward to the next call.

This concludes today's call.

Thank you for joining.