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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Nitro Q4 Investor Briefing Call. Today with us, we have Sam Chandler, CEO; and Ana Sirbu, CFO. We will shortly pass to Sam and Ana for a short presentation followed by a live Q&A where questions can be submitted via text or audio. If you would like to ask a question, please follow the instructions on your screen.I would now like to hand over to Sam for his presentation.
Thanks so much, David. Well, good morning, good afternoon or good evening, wherever you are. Welcome to Nitro's trading update for Q4 and fiscal year 2022. As David said, we will start with a short presentation today and then we'll move to questions. I'm Sam Chandler, the Co-Founder and CEO; and with me today is our CFO, Ana Sirbu.Ana has recently returned from maternity leave. So welcome back, Ana. And before we start, everybody, just a reminder that we have a calendar fiscal year. So when we're talking about FY '22, we're talking about calendar '22. And all figures presented are in U.S. dollars unless otherwise noted. Another note today is that given the ongoing takeover activity, we're sharing more financial information that is typical for our trading updates. And you would have seen that today in what we released at the ASX this morning, Australian time, and that includes unaudited revenue and operating EBITDA numbers for FY '22.So with that out of the way, firstly, we'll start with the financial highlights for FY '22. And in short, we had a strong year in challenging economic conditions and through ongoing takeover activity and also while taking $5 million of cash costs out of the business in the second half. For the year, ARR was up 27%, finishing just shy of $59 million. Subscription revenue was up 50% to $50.6 million and total revenue was up 31% to $66.8 million. We also saw record cash receipts from customers, growing 39% from 2021 for a total of USD71.7 million in cash receipts for the year.Interestingly, at current exchange rates, that's just over AUD100 million in cash receipts for the year, which is a milestone for the company. We finished the year with USD28 million in cash and no debt. And we've also made pretty significant progress towards cash flow breakeven with a substantial reduction in operating cash outflows throughout the year. If you refer to the quarterly activities report that's included with our 4C filing, you'll see a table that shows clearly how -- what we call underlying cash outflows, which are basically cash outflows, excluding costs related to the takeover activity reduced from $8.2 million in the first half to just $2.6 million in the second.So you can see that we're making really good progress towards our goals of being cash flow positive in the second half of this year. And I think the direction of travel and the distance to travel in the second half of '22 clearly illustrates how much difference you can make in the financial profile of an enterprise software business in just a couple of quarters when you want to move towards profitability. So a testament to the business model and the changes that we've been making in the business.Moving now to Slide 3 for a quick Connective update. We've seen strong organic growth in the Connective business. And that's been driven in large part by adding Nitro's global go-to-market expertise to their powerful product offering. And Connective ARR was up 34% in 2022. We added over 120 new logos during the year. And importantly, the Connective product has begun to scale successfully worldwide. Many of you will recall that prior to the acquisition, almost all of Connective's customers were in Belgium and France and now leveraging Nitro's global sales network, we have customers in 17 countries and counting.And so we have now sold the Connective product in all of our major markets, the U.K., Australia, the U.S., Canada, Pan Europe, basically everywhere that we operate and the number of countries is just continuing to grow sort of by the month. So really strong, I think proof point there that the Connective product can truly scale globally. But we believe that we've barely scratched the surface of the potential for eSigning and for high-trust [ document ] workflows at Nitro. So while we are pleased with the initial progress here, I think we are particularly excited about stepping up for the next level of scale this year in 2023.So moving on now to Slide 4 and the ARR story and the key SaaS metrics. As we mentioned previously, we finished the year at $58.8 million in ARR. And this is after beginning our recurring revenue journey in 2016, which is when we launched Nitro's first subscription offering. Interestingly, when we went public in 2019, just over 3 years ago, we had less than $17 million of ARR. So we added $12.6 million of ARR in 2022. We've nearly 60% of that coming in our seasonally stronger second half. That was despite the increasingly challenging macro environment and all the ongoing takeover activity as well as the restructure that we did to take $5 million of cash cost out.So reasonable story. I think our performance on key SaaS metrics, like gross and net revenue retention is just sort of unchanged from prior periods. It's remaining strong at 93% gross retention and 113% net retention, respectively. And I think the scale you see here now the growing scale in our subscription business is really a testament to both the strength of the product offering that we have and increasingly the eSign product offering that we had, thanks to the Connective acquisition, but also the high quality of our recurring revenue. I think those fundamentally strong gross to net retention rates combined with the offering that we have really gives us an enormous amount of runway to keep scaling this business to $100 million of ARR and well beyond.Moving now to Slide 5, you can see our revenue story over the past 3 years. We have strong CAGRs for both total and subscription revenue. But it's worth noting that subscription revenue has more than doubled in the period, it's up nearly [ 240% ], and total revenue is up over [ 66% ] in the same period. So I think overall, good sort of trajectory on both. And we expect total revenue growth to increase as we bring our last remaining perpetual sales channel, which is our e-commerce operations across the subscription, which will drive much higher growth rates.So moving on now actually to Slide 5 (sic) [ Slide 6 ], to our enterprise wins. We had another great quarter of big logos. Again, we saw all regions and all our key industries represented. We signed new deals with large banks like Westpac, Bank of Ireland and RBS, NatWest, all existing customers but all resigning the [indiscernible] expanding with Nitro. We saw some fantastic new customer wins last quarter at multibillion-dollar businesses, businesses like Elanco, which is the second largest animal health care company or animal pharmaceutical company in the world, also Calfrac, one of the world's largest oilfield services companies.We also saw multiple large renewals and expansions last quarter from well-known global brands like Procter & Gamble, Sandvik, Grant Thornton and Baker Tilly. So a number of great logos in there for the Q. Today, we're serving over [ 13,000 ] business customers of all sizes, began small right around the world in over 175 countries and that's the one we continue to be incredibly proud of.Moving on now to Slide 6 (sic) [ Slide 7 ], I think it is, just looking at our results versus guidance, and I think a very quick recap here for you all. We've covered a couple of these numbers previously, but we'll just put them in the context of guidance. So as mentioned, ending ARR was up 27%. We beat the midpoint of guidance there. Revenue was up 31%, basically in line with the midpoint of guidance. And our operating EBITDA loss was $11 million, closer to the low end of guidance following the cost reduction initiatives that we executed in the second half.And so that concludes the fairly brief formal presentation for today's Q4 and FY '22 briefing. Thank you very much for joining us. I will just stay while we've still got a chance to make some remarks that given the ongoing takeover activity, it remains, of course, to be seen whether Nitro remains or continues as a listed company. But I want to really sincerely thank you all for your support over the last 3 years. While we still have an awful lot to do, we are proud of the progress that we've made as a public company.I mean when we listed in 2019, we had just $36 million in total revenue. We had only $13 million in subscription revenue and less than $17 million of ARR. And in our 3 years on the ASX, we've nearly doubled total revenue. We have quadrupled our subscription revenue, and we have way more than tripled our ARR. So thank you all again for your belief in the company and its leadership and thank you for your support, especially those of you who have been with us since the IPO in 2019. And of course, we thank you for your ongoing support as we sort of navigate the ongoing takeover activity, that's afoot.So thanks again, guys, for joining us today. And with that, let's go to questions, where Ana will join me on the line.
Thank you, Sam. We've had no questions come in as of yet. And just as a reminder, if you'd like to ask a question, you can either submit your question via text by clicking the messaging tab at the top of your screen, type your question in the Ask a Question box and hit the send arrow or alternatively, if you would like to ask a question early, please click the Request to Speak button at the bottom of your broadcast window and follow the instructions on your screen. We might just give it 1 minute, see if any questions come in.Okay. Our first question comes from Shuo Yang. Can you comment on the velocity of pipeline conversion and general decision-making time frames from potential customers?
Yes. Yes, we can. So interestingly, I would say Q4 and sales pipeline dynamics and close rate dynamics and things were much more like Q3, where we saw somewhat of a return to what we called at the time kind of normalized trading and quite different, I think from the volatility, the extreme volatility that we saw in kind of Q1 and Q2. With that said, I think the demand environment is clearly softer globally than it was 12 months ago or perhaps more like 12 months to 18 months ago. But we're not observing any significant differences in, for example, geographic pipeline performance.So for us, both North America and Europe, our 2 largest markets remain kind of comparable. We believe that the market size in those 2 markets is roughly comparable. And while I think you probably heard some reports of kind of a weaker Europe in 2022 versus, say, North America, we actually haven't really observed that. So I think both major theaters or geographies pretty comparable. The sort of segment by segment pipeline dynamics are pretty consistent with what they were 6 months, 12 months, 18 months ago, frankly.So like things like sales cycle times, days in stage across the different stages of the sales cycle, things like that, we haven't really seen significant differences. We have continued to see throughout 2022 more pushed deals and deferred deals, deals that got reduced in scope or size generally as a result of kind of the ongoing macro uncertainty, and to some extent, we expect that to remain the case in [ 2023 ] with the prospect of a global recession.But broadly, I would say that the underlying demand for document productivity and workflow, software remains really strong. It's still a very global opportunity. It still stands kind of businesses small to very large. And so other than just a generally softer demand environment than probably 2021, most of the other characteristics of the pipeline and sort of sales dynamics remain the same.
We have a follow-up question from Shuo Yang. Please comment on any changes in the pricing environment in eSigning?
That's a great question. We haven't seen significant changes in the pricing environment for eSigning in the most recent period. But I think it's worth observing that price points that perhaps DocuSign was achieving previously harder to achieve when you have products that are just as good or in some cases better at lower prices and in a weaker demand environment, where customers are pushing very hard for more value.And so we have probably seen our prices holding steady or in some cases increasing. I think we actually can do a lot more with how we price to drive more value. We haven't been in sort of value extraction mode with pricing just given the broader economic backdrop. But I think what you're seeing is probably a bit of a narrowing from both the top and the bottom of the pricing spectrum into kind of a new midpoint. In other words, I think there's an opportunity for value-based vendors like Nitro to move up. And we think this is particularly the case with high-trust signing where we know we have [Technical Difficulty] other than DocuSign, but we certainly have seen a number of examples where the market leader has been coming down in price to try and meet customers where they expect value. But generally speaking, remaining in our experience, pretty unflexible -- inflexible rather.
We currently have no more questions, and I'll just give it another 30 seconds for any to come through. We've had one question come through from [ Marcus Barnes ]. Can Sam outline how the cash flow breakeven is progressing, i.e., will they achieve this in Q1 2023?
I can start on this, and Ana may wish to add to it. So we're making good progress. I think if you refer to the quarterly activities report that we included with our 4C, we've included a table in there that basically shows our underlying cash flow, that is cash flow excluding costs related to the take-private transaction. And it shows significant progress.If you look at cash outflows in the first half of last year, it was a bit over $8 million. If you look at cash outflows in the second half of the year ex all the transaction costs, it was a bit over $2.5 million. So a very significant change. And so I think the direction of travel and the sort of rate of travel, it gives us really good confidence in getting -- being cash flow positive in the second half of this year. We haven't made any decisions about sort of trying to accelerate that.I think there is the possibility that we could bring cash flow positivity forward. However, we are currently operating under the terms of the Implementation Deed with Alludo. And so we're not expecting to make significant changes to the business in the next couple of months. And so at the moment, I think the -- our sort of guidance or commentary in this area remains the same as it was previously, which is that we expect to be cash flow positive for the second half. But I do think that looking at the underlying cash flow across 2022, it should probably give investors 2 things.Number one, a real sense of confidence that with these kinds of enterprise software business models that you really can change the profitability profile on a dime. And you can in a couple of quarters go from burning cash to being close to cash flow breakeven. And also confidence, secondly, the confidence in our ability to meet the cash flow positive goal for second half of this year. So no update on sort of guidance or that plan for the year at this stage, just given that we have 2 live takeover offers afoot at the moment, and we are still in the Implementation Deed mode with Alludo.
A follow-up question from Marcus. [ I'll add to that ], are there any further restructuring or one-off costs in Q1?
Yes. Ana, do you want to talk to that, perhaps?
Happy to. So with regards to the Q1 costs, the -- we do anticipate to have other transaction-related costs in Q1 as we continue to employ the services of our advisers, specifically with regards to the takeover process that is ongoing. However, any other one-off costs, if they do come in, they will be very minimal. So at this moment, there's no meaningful one-off costs expected otherwise.
Thank you. We've had no more questions submitted. Right, just give it another 30 seconds to see if any come through. Okay. It appears that is all the questions that we've had today.
All right. Well, thank you. I think we can wrap it there. Again, thanks to all for joining us, and thank you for your continued support, and we will see you at the next update cycle. Thank you very much.