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spk00: Good afternoon and welcome to WeCommerce fourth quarter and full year 2021 financial results conference call. After the market closed, WeCommerce released financial results for the period ended December 31st, 2021. The press release as well as a replay of today's call can be found on the company's investor relations website at investors.wecommerce.co. Please view the release for additional information on what will be discussed during today's presentation. The company will make forward-looking statements on the call today that are based on assumptions and therefore are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company undertakes no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in the press release issued by the company this afternoon, as well as in our filings on CDAR. Note that the adjusted financial measures the company speaks to today are non-IFRS measures, which are not a substitute for IFRS financial measures. Reconciliation of these measures to IFRS measures are available in the company's earnings release and the most recent MD&A. I will now turn the call over to WeCommerce CEO, Alex Pearson. Thank you, Operator.
spk02: Good afternoon, everyone. I'm joined today by Dave Chiron, our Chief Financial Officer. I'll provide some brief opening remarks before turning it over to Dave to discuss our financials in greater detail, followed by our standard Q&A. First of all, it's a pleasure to be speaking with you for the first time officially as CEO of WeCommerce. I've been with the company for nearly a year and a half, leading our acquisitions team and portfolio operations while serving as president for most of last year. We're a dramatically different company today compared to just 18 short months ago. and I expect will be dramatically different 18 months from now. I'm incredibly excited by the opportunity and humbled by the responsibility in taking over as CEO of our company. Chris Farley and Andrew Wilkinson have built a great business that empowers entrepreneurship through e-commerce, and we have a clear, defensible playbook for profitable, sustainable growth through acquisition and cultivation of these businesses for the very long term. In recent months, we've had several additions at the management level of e-commerce, as well as in our portfolio companies, all of which has been in the furtherance of the same mission, which is to build a leading acquirer and operator of e-commerce enablement technology companies. I look forward to continuing to work closely with our many talented colleagues, the board, and our shareholders to capitalize on the significant growth opportunity ahead. Dave will jump into detailed numbers in a second. I wanted to call out a few numbers from our Q4 financials that highlight our scale, growth, and cash flow generation today, despite e-commerce being in the first inning. First, our app segment is now approximately a $30 million annualized revenue business. Revenue grew 7.6% in the fourth quarter compared to Q3 2021. For the full year, the operating margin for our app business was 44%. Second, our themes segment continues to be highly strategic and cash-generated business, serving tens of thousands of new merchants annually. For the year, our themes business generated $11 million of revenue at a 45% operating margin. We acquired ArchType at the end of August, and we expect cash flows from ArchType will result in a full payback of our equity investment prior to the end of 2023. Lastly, e-commerce generated $3.7 million in of operating cash flow in the fourth quarter, or 30% of our revenue. On top of that, we have close to $50 million of available liquidity to deploy into attractive acquisition opportunities, such as our recent acquisition of NoCommerce. Altogether, I'm immensely proud of the business our employees have built over the past 18 months, and I'm confident e-commerce can continue to build the leading e-commerce enabling platform for the many years to come. I'll now turn the call over to Dave, our Chief Financial Officer, to review our financial results in more detail.
spk03: Thanks, Alex, and good afternoon, everyone. Before I begin, as a reminder, we report in Canadian dollars, and all references to amounts on this call and in our published financial reports are in Canadian dollars, unless otherwise stated. In the interest of time, I will focus my prepared remarks on the fourth quarter of 2021 and although both Q4 and full-year 2021 are disclosed in the financial statements and MD&A. Moving to our results, in the fourth quarter of 2021, we generated revenue of $12.2 million, up 99% year-over-year and 106% on a constant currency basis. Breaking down revenues by segment, the company has three reportable lines of business through which revenue is generated, apps, teams, and agency. The app segment refers to the operations associated with providing software to customers, which we classify as recurring subscription revenue. In Q4, apps or recurring subscription revenue was $7.3 million, an increase of $5.1 million, or 229%, equal to 240% on a constant currency basis from Q4 of 2020. The theme segment refers to the sale of theme design templates to customers operating their stores on various e-commerce platforms. We refer to this segment as digital goods revenue. In Q4, themes or digital goods revenue was $4 million, an increase of $1.6 million or 72% equal to 77% on a constant currency basis from Q4 2020. Lastly, The agency segment refers to the operations associated with providing agency services to customers. This segment is classified as agency services revenue. In Q4, the agency services revenue was $949,000, a decrease of $660,000 or 41% from Q4 of 2020. Net income in Q4 2021 was $4.1 million compared to a net loss of $5.5 million in Q4 of 2020. Our net income for the quarter was partially offset by certain non-cash expenses, such as depreciation and amortization, as well as fair value adjustments related to the revaluation of contingent consideration payable as part of the acquisitions of Stamped, 460, and Archetype. Our adjusted EBITDA for the fourth quarter was $3.5 million, or 28% of revenue, up 105% from the $1.7 million, or 28% of revenue reported in the fourth quarter of 2020. Operating cash flow at year end was $8 million, or 20.7% of revenues, an increase of 41% compared to $5.7 million in 2020. Cash on hand at December 31st was $26.1 million compared to $61.2 million on December 31st, 2020. Total debt outstanding at December 31st was $60.2 million. In summary, we're seeing sustained and healthy performance across our business. We remain confident that our excess cash from operations combined with a nearly $50 million liquidity position provides sufficient resources for us to execute on our strategic plans for the foreseeable future. I'll now turn the call back to Alex for a business update.
spk02: Thanks, Dave. 2021 was a transformational year for our business. Beginning with a successful entry to the public markets at the end of 2020, this year was highlighted by several major acquisitions, key leadership appointments, and strong financial results that collectively have us well positioned for the road ahead. In 2021, we significantly increased and improved our portfolio of holdings through acquisitions in our apps and themes businesses via Stamped and Archetype, respectively. As a reminder, Stamped and our app segment is a leading provider of reviews, ratings, loyalty, and reward solutions. Since closing our acquisition of Stamped this past April, we've built out the sales, customer success, marketing, and executive functions, including recently appointing a new COO and CTO. At Stamps, we're increasingly seeing merchants convert to the full suite bundled product offering that includes both reviews and ratings, as well as loyalty and rewards. As a percentage of revenue, the bundle offering has nearly tripled since December 2020 to December 2021. The net effect of this increased adoption of the bundle solution has been a healthy increase in Stamps average revenue per customer, which we've seen improve into Q1 of this year as well. Overall, Stamps ARR grew 50% last year. Under recently appointed CEO Thomas Kelly, Archetype has continued to perform even in a challenged e-commerce environment. Archetype's impulse theme continues to be the most popular paid theme in the Shopify theme store. Thomas Kelly previously spent over five years on the internal themes team at Shopify and is continuing Archetype's focus on product innovation. And earlier this month, we announced the addition of no commerce to our portfolio of companies. NoCommerce is the leading e-commerce survey and insights platform provider that enables merchants to capture and act on zero party data collected directly from customers. In the post iOS 14 world, the entire e-commerce industry is looking for solutions to address customer attribution challenges and to develop their own customer data. NoCommerce helps merchants build up own customer data and attribute customers to any channel, ensuring each customer can be nurtured throughout the discovery, conversion, and retention lifecycle. From a number standpoint, the acquisition is not expected to have a material financial impact on our financial results for the coming year. Looking ahead, while we continue to invest in our portfolio companies, we're also actively canvassing the plentiful Shopify ecosystem for attractive opportunities in an improved acquirer's market. We are tracking over 1,000 companies, and our active pipeline continues to represent well north of $100 million of annualized revenue and is heavily weighted towards SaaS businesses. These SaaS businesses tend to have the delightful combination of strong growth and profitability. We stayed on the sidelines through most of the second half of 2021 due to an elevated valuation environment, which we are now seeing come down to more attractive levels. In fact, in the first quarter of this year, we've sent out more non-binding offers than all of 2020, and we're optimistic several attractive M&A opportunities will come to fruition this year. We built a team, capital base, and systems to scale e-commerce organically and through acquisitions. We're excited about the opportunity ahead of us. And with that, I'll pass it back to the operator to facilitate the Q&A.
spk00: At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Daniel Chan with TD Securities. Your line is open.
spk01: Hi, guys. And, Alex, thanks for all the info and updates. You did mention that the M&A valuations are coming down. Are you seeing that being consistent across the different segments that you target, or are you seeing the valuations move differently depending on the types of targets you're looking at?
spk02: Yeah, it's a good question, Dan. Generally, with respect to the apps businesses, those are ones that were elevated through most of last year, certainly going into the second half. Teams business, we did not see as much of a change in valuation. So we're optimistic that with more down-to-earth apps valuations, we should be able to take advantage of those.
spk01: Okay, that sounds good. I actually want to dig into that no commerce acquisition a little bit. um because it does play into that increased privacy uh issue that a lot of uh shopify uh merchants may be facing it's smaller than what you've typically done so can you talk about what your plans are for this company and whether you see how fitting in with some of your other assets you talked about how the bundling with scant has been incredibly successful does no commerce fit in with any of your other assets
spk02: So a lot of our companies do partner together. Some of those partnerships are more formal than others. Other times it just works as a collaboration between companies, whether that's through best practice sharing or sharing of general insights that we share. see across the Shopify ecosystem. And we have a dedicated team at WeCommerce, our portfolio operations team, that helps facilitate those insights as well. When it comes to new commerce, you're right, it is smaller than the typical company that we look at. But I think it was a function of being a perfect fit, both from a management perspective in Jeremiah, who co-founded that business, and with whom we're delighted to partner with, and the fact that what they've done over the past few years is really build a product to be able to scale to millions of revenue. So while it is early, what we do really well is help provide the infrastructure resources, both from a strategic perspective as well as the capital, to allow these companies to scale quickly. And so that's why we're so excited to partner with NO for the many, many years ahead.
spk01: Okay, thanks for that. Staying in the apps segment, that segment grew about 4.6%. Just want to confirm that this is the last quarter that should be impacted by the pricing changes you made to ultimate special offers. And any thoughts on what kind of organic growth you can get now that we've locked it?
spk02: uh you're speaking about q4 2020 um apps excluding uh 416 stamps just to confirm is that right yes yeah um so there's generally a confluence of events there so one is uh obviously the pricing changes mentioned earlier uh second was um just kind of piggybacking off some of the data that shopify released around black friday cyber monday being a bit weaker than it has been in the past. Obviously, it was a tough comp compared to the year before. But apps within the Pixel Union division are generally more sensitive to new merchant growth, whereas Stamped and certainly 460 are less sensitive to that. And so there is some variability there. Ultimately, we look at kind of growth on a long-term basis, not just year to year.
spk01: Okay, that's a good segue into my final question then. If we look at digital goods, organic growth, that continues to be challenged, seems to be down about 30% year-to-year. Is this still a result of you not being able to sell themes outside the Shopify store, or is it related to that new merchant growth weakness that we saw?
spk02: sure um i mean from a full year perspective dan um you know the existing themes business was down around 11 on a constant currency basis um these businesses as they are one-time sales are going to have a little bit more variability um and we structure the businesses accordingly to whether any of that variability um so again we kind of look at it from a multi-year perspective uh where the themes business obviously had quite healthy growth for 2020. And so, you know, it's less about the quarter-to-quarter variability or even kind of year-to-year in that we still see that business as highly strategic, highly cash generative, and we're in position to weather any sort of quarter-to-quarter variations. Great. Thanks. I'll pass it on. Thanks, Dan.
spk00: Your next question comes from the line of Robert Young with Canaccord. Your line is open.
spk02: Hi, you said that you're seeing a more positive valuation environment, but I'm curious about intent.
spk01: You said you had a lot of conversation, a lot of offers out, but are you seeing any, how is intent from some of the targets you're engaging with? It seems to me that they might need a little bit of a leg to sort of adjust to an evaluation environment.
spk02: Is that not what's happening or? Well, so generally what we do, and I've shared this before, is really get to know companies over the long term. So when it came to Stamps, we had been chatting with them for the better part of two years. We like to have those conversations, develop the relationships, see their business unfold. And so when it comes to sending out, you know, offers, it's still the beginning, frankly, of developing those relationships and undergoing the diligence process. I think we're aware that it's a highly uncertain environment out there at the moment. What we're doing, however, is resonating really strongly with founders, and that almost with every transaction we do, our reputation is improved. We have more reference points, and frankly, the founders of the companies that we acquire are our best source of deal flow opportunity. And so, When it comes to intent, there's both, you know, it takes two to tango, obviously, Rob. And I haven't seen a noticeable decline in intent, frankly, in ability to consummate a deal. Okay, that's great to hear.
spk01: So you wouldn't expect any kind of a slowdown in activity, you know, from, I guess I'm a bit worried that if there's a big dislocation in valuations, you might get a bunch of, you know, potential targets sort of
spk02: backing off and waiting for better times. But that doesn't seem to be the case, I guess. Yeah, I mean, you certainly see that. And I think one of the things that we were seeing was it was elevated expectations, but it was actually not a lot of deals being done. So I think what's... coming back to reality are just expectations. And while it's still, um, attractive, obviously some people on the margin will try to wait for better times, but that's always going to be the case. Okay. That's great. And then, um, I mean, he said he'd made quite a number of changes in the, um, you know, executive positions inside of, I think it was stamped at CTO and another position. Should we think of any kind of a lag or strategy change there? Or is that business just continuing to do well? Or should we think of some kind of a pause here because of the change in management or change in strategy? No, it's not a change in management. It's a continued investment in the business. management uh sorry continue investment into stamped uh so a lot of the businesses we do look at are founder owned businesses and generally there's not a lot of um i would say executive talent uh with a lot of the companies um and so at the end of the day we want to put in place the foundation for uh companies such as stamp to continue growing uh and part of that is adding top tier talent at the executive level uh and below okay that's great
spk01: Um, last question, I guess, um, then already covered the other two things, but the agency is down quarter of a quarter. I know you've said that's volatile and not a lot of things.
spk02: Is there anything, you know, to, um, uh, to explain that quarter quarter drop? Yeah, so it was the same rationale as our last quarterly earnings, which was kind of the same major client has yet to renew. We are making some changes to that agency business in order to reinvigorate growth and take advantage of the capacity in that business. Okay, so that's something that timing of a renewal might hit the Q1, might hit the current quarter. As I mentioned, that client has not reengaged yet. Okay. So it's uncertain, I guess. Okay. Okay. That's it for me. Thanks a lot for taking the questions. Thanks, Rob.
spk00: There were no further questions. I'd like to turn the call back to Alex Pearson for closing remarks.
spk02: Thank you, Robert. Once again, I want to give an extended thanks to our employees, shareholders and partners for their continued support. Thank you very much for joining our call today.
spk00: This concludes today's conference call. You may now disconnect.
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