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spk01: Good afternoon. Welcome to WeCommerce's second quarter 2022 financial results conference call. After market close, WeCommerce released financial results for the period ended June 30th, 2022. The press release as well as the 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. Reconciliations of these measures to IFRS measures are available in the company's earnings release and most recent MD&A. I will now turn the call over to WeCommerce CEO, Alex Pearson.
spk02: Thank you, operator, and good afternoon, everyone.
spk04: 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. Our second quarter results reflect a return to seasonality and normalized demand environment in the e-commerce, though it continues to be impacted by persistent high inflation, higher advertising costs, and supply chain bottlenecks. Through the first half of 2022, e-commerce spending increased 7.5% year over year, according to Adobe's Digital Price Index, which is about half the growth during the pre-COVID era on a nominal basis, so not adjusted for inflation. As a result of the slowing demand environment, we reduced costs significantly in our pixel union themes business, which is more sensitive to new merchant ads, and fully paid down our revolver, all in furtherance of our disciplined approach to managing costs and our balance sheet. We continue to invest in R&D to build the leading e-commerce enablement provider for merchants worldwide, all the while continuing to generate significant operating cash flow. I'll turn it over to Dave to provide more detail on our Q2 financials.
spk06: Thanks, Alex, and good afternoon to everyone on the call. Before I begin, and 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. Moving to our results, in the second quarter of 2022, we generated revenue of $11.6 million, up 24% year-over-year and 22% on a constant currency basis. Breaking down revenues by segment, the company has three reportable lines of business through which revenue is generated, apps, themes, and agency. The apps segment refers to the operations associated with providing software to customers, which we classify as recurring subscription revenue. In Q2, apps or recurring subscription revenue was 7.5 million, an increase of 1.6 million or 27% equal to 23% on a constant currency basis from Q2 of 2021. 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 Q2, themes or digital goods revenue With $3.2 million, an increase of $1.3 million, or 65%, equal to 63% on a constant currency basis from Q2 of 2021. An agency segment refers to the operations associated with providing agency services to customers. This segment is classified as agency services revenue. In Q2, the agency services revenue was $868K, a decrease of $587K, or 40%. from Q2 of 2021. Net loss in Q2 was 4.5 million compared to a net loss of 224K in Q2 of 2021. The net loss for the quarter includes fair value adjustments amounting to 1.3 million, which relate to the revaluation of the contingent consideration for the archetype and no commerce acquisitions. Our adjusted EBITDA for the second quarter was 1.5 million or 13% of revenue compared to 2.7 million or 29% of revenue reported in the second quarter of 2021. Operating cash flow for the six months ended June 30th, 2022 was 4.9 million or 21% of revenues, an increase of 188% compared to 1.7 million or 11% of revenues in the first six months of 2021. Unrestricted cash on hand at June 30th, 2022 was 10.3 million compared to 26.1 million on December 31st, 2021, as we paid down 12.7 million of our revolving facility. Total debt outstanding at June 30th, 2022 was 48 million compared to 60.2 million at December 31st, 2021. And lastly, the fair value of our contingent consideration payable on our balance sheet is 1.6 million. I'll now turn the call back to Alex for a business update.
spk02: Thanks, Dave. For a more specific update on our portfolio segments, I'll begin with Stamps in our app segment.
spk04: As a reminder, Stamps is a leading provider of reviews, ratings, loyalty, and reward solutions. Stamps is building out its first-party data collection capabilities, meaning it will source more customer data from more channels, all to deliver ways for merchants to provide an increasingly personalized customer experience that improves conversion, average order value, and customer retention. We're excited about these product developments at Stamps, including a new and improved loyalty product that will launch in the coming months to help merchants retain and reward their best customers and offset rising customer acquisition costs. Merchants continue to see strong value in the bundled reviews and ratings and loyalty and referrals product offerings which represent about 18% of MRR, up from 11% last year. We continue to invest in that business for the long term. Our archetype themes business continues to provide strong growth and profitability, delivering $1.93 million of revenue in the quarter. As mentioned, we significantly reduced costs at our Pixel Union themes business, resulting in severance costs of $623,000 in the quarter. As a result, we anticipate margins for themes to improve in the coming quarters. In our agency segment, our pipeline and new business has grown significantly since we brought on board new leadership in late April. As that pipeline converts to book business, we expect the financial performance of that segment to improve. Of our other portfolio companies within the app segment, NoCommerce continues to demonstrate user and MRR growth each month, while 460 continues generating significant cash flows. Our Orbit apps business is more sensitive to new merchant additions, and that is reflected in the results. We continue to have productive discussions with multiple acquisition targets, though the uncertainly highlighted last quarter continues to persist, resulting in widespread outspreads and an overall sentiment of let's wait and see. We remain highly optimistic over the long run and are well positioned to take advantage of any near-term pessimism to partner with wonderful businesses at attractive pricing. We're looking at both tuck-in acquisitions in the span of 1 to 5 million ARR, as well as larger platform acquisitions that are well north of 10 million ARR. Valuations get more attractive with each passing month that we believe they can fall further. We're proud of the results and profitability of our businesses. We continue to build a team, capital base, and systems to scale e-commerce, both organically and through targeted complementary acquisitions. With that, I'll pass it back to the operator to facilitate the Q&A.
spk01: Thank you. At this time, I would like to remind everyone, 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 Daniel Chan with TD Securities. Your line is open.
spk05: Hi, guys. Alex, you were talking about the e-commerce headwinds that you guys are seeing in the overall industry. Can you just give us some color on what you're seeing with the merchant base with respect to gross merchant additions and churn that's creating some of these headwinds for you?
spk04: Yeah, absolutely. Thanks, Dan. You probably have very good insight as well just from your following of Shopify, but What we're seeing is if you look at the past, call it three quarters, Q2, Q1, and Q4 last year, a noticeable slowdown in both year-over-year as well as quarter-over-quarter growth in terms of the core subscription revenue from Shopify, which is a decent proxy for net merchant ads. I know when it relates to Shopify, they mentioned the second half would be stronger in terms of net merchant ads. Certainly some of our businesses are more sensitive to those. So it's hard to say exactly how the first half will fare compared to the second half, although generally the second half is a lot stronger than the first half. So it might be a return to normal seasonality after about two years of COVID-induced additional demand.
spk02: Okay, thanks for that. U.S.
spk05: e-commerce volumes may have bottomed. It looks like some of the more recent reports coming out show that July may have steadied a little bit. Are you seeing any signs of that stabilization in your metrics recently?
spk04: It's a little too early to tell. Generally, you do see a bump in the August, September, October, August, and November timeframe, but I think it's a little too early to tell, to be honest with you.
spk05: Okay, thanks. And then you did talk about some hesitation with the targets you're still talking to, but following Shopify's restructuring and the normalization of e-commerce volumes, the commentary they gave on their earnings call, are target acquisition founders still holding out or was there a slight change of tone following that?
spk04: You know, I think we talk with so many different targets that The overall consensus, there's not a real, there's not one reason that dominates those conversations. I think where most of our conversations are today is founders are trying to understand just what the future growth profile will look like in the next six to 12 months and is this the ideal environment to sell. I think many of them probably wish they sold two years ago But we are here today looking at very attractive assets, and we think valuations can fall further as the private markets continue to lie the public markets a little bit. You know, people are selling for family reasons. They're selling because they've been working on something for 10 years and they want to move on. So price is not always the determinant factor, and certainly when it comes to our acquisitions, they tend to be proprietary, meaning we're only competing with that founder of psychology. We're not necessarily competing with a lot of other bidders for those assets.
spk02: Great. Thanks, Alex. I'll pass the line. Thank you, Dan.
spk01: Your next question comes from the line of Robert Young with Canaccord. Your line is open.
spk03: Just to continue, that last line of questioning, you said that hadn't seen any change in competition for deals? Or is that more a comment on deals that you've been pursuing for a long time? Maybe if you just talk about any change. Are there new entrants coming into this market where valuations are more attractive is basically the core of the question.
spk04: Yeah. We saw several new entrants, I would say, in Q3, Q4 of last year. Some of those have acquired small businesses. For the most part, I view our pipeline as quite proprietary, given we have longstanding relationships with these founders. We track these companies over many, many quarters, in many cases, many years, and develop that relationship over time. We are not seeing a real pickup in new competitors going after assets that we know quite well. I think what we probably saw last year was easy money coming in, and that tends to be the first money that leaves as well. So, to kind of summarize, Rob, haven't seen a significant increase in the competitive environment, despite what we see as increasingly attractive valuations.
spk03: Okay. Next question. A couple of quarters ago, you said that you've put out a lot of non-bounding offers. Your activity is really strong. Has that continued? Have you paused a little bit to let the valuation stabilize? Maybe just talk about the cadence of the offers and your activity.
spk04: Generally, when we think about putting out the non-binding LOIs, it is obviously, to continue discussion, continue diligence, and understand what a potential purchase price could be. So we continue to have LOIs drafted, sent out, negotiated as part of our overall acquisition process. What we're seeing, as I mentioned, is founders increasingly saying, let's wait and see. I imagine back in Q1, there was softness and they were trying to determine if that was I think what we're seeing now is there's those kind of structural and temporary factors that affect e-commerce, certainly in the short run. We don't believe in the long run. But that uncertainty just means founders are waiting a little bit longer to transact.
spk03: Okay, that makes a lot of sense. And maybe this last question out of the agency segment, you said that the pipeline had grown a lot. And so maybe just talk about that business just as it relates to the rest of the business. I think you said in the past that you use that as a way to identify trends. Maybe just talk about the value of the agency business because it seems to me that it hasn't been as healthy over the last little while.
spk04: Yeah, no, it's absolutely a fair question, Rob. The agency business does provide a lot of competitive intelligence. You know, most recently I was at a large 50-brand dinner put on by your agency, and the intelligence and the insight you get from that is tremendous, especially with brands who are kind of pushing the bleeding edge of innovation in e-commerce, frankly. It doesn't mean we need to have 10 agencies, but there is absolutely strategic merit to the agency that we have today. I previously mentioned that know what we saw in that agency was a lack of pipeline as being addressed and the utilization meaning the resources we have can act on that pipeline very quickly to drive an improvement in margin but obviously we look to evaluate the merits of any business both on the financial metrics the long-term cash flow generation of that business as well as the strategic fit within e-commerce so absolutely agree with the overall sentiment that if it's not providing those various segments, then we need to strictly evaluate that business. But for now, we think the leading indicators are quite healthy in that business, and it provides a lot of strategic benefit for WeCommerce as well as for other portfolio businesses.
spk03: Okay. Last question for me is just on the Amazon Buy With Prime initiative. I think you made some comments about how it had not as much impact on your business or the as it might on Shopify itself. And so I thought you could just, you know, cover the impact from that on your business and on Passline.
spk04: Sure. Thanks, Rob. So the Buy With Prime initiative for those on the call who are less familiar is the ability to place essentially a checkout button on a merchant website. And that merchant website can be run on Shopify, BigCommerce, a custom backend, and it allows for that consumer to have a Prime-like purchasing experience where it's also fulfilled by Amazon. Presumably, and I know Shopify and Amazon have discussions, so I don't know what the future holds, but presumably that bypasses the Shopify pay checkout functionality which drives GMV. If that works well, that is an overwhelmingly positive aspect for merchants as it allows them to keep their brand keep their own customer data, keep their experience, and leverage kind of back-end logistics that Amazon has poured tens of billions of dollars into. So one thing that we really look to is improving the viability of merchants, whether that comes from functionality that Shopify delivers, Amazon BigCommerce, to some extent we're agnostic about that, given we play on the application layer well above the kind of commerce infrastructure layer. So I know that was announced a few months ago, absolutely not rolled out any sort of meaningful scale just yet, and we don't know how the industry players may or may not participate in that Buy With Prime initiative or if it's just one of Amazon's 500 experiments that they tend to roll out in a given year. So still too early to tell, but I know it's kind of sent shockwaves to the e-commerce industry when it was unveiled a few months ago.
spk03: Right. Okay, well, thank you for taking the questions.
spk00: Thank you, Rob.
spk01: As a reminder, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad.
spk00: We'll pause for just a moment to compile any remaining questions. At this time, this concludes our question and answer session. I'd like to turn the call back over to Mr. Pearson for his closing remarks.
spk04: Thank you, everyone, who joined us on today's call. I especially want to thank our employees, investors, and partners for their continued support. Thank you. Back to you, operator.
spk01: I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us for WeCommerce's second quarter 2022 Financial Results Conference call. You may now disconnect.
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