LifeSpeak Inc

TSX:LSPK

Earnings Call Transcript

[Operator]

Good morning, and welcome to LifeSpeak's Second Quarter 2024 Results Conference Call. [Operator Instructions]

Before we start, we would like to remind you that all the amounts of customers call are denominated in Canadian dollars, unless otherwise indicated. Please note that statements made during this call include forward-looking statements and information and future-oriented financial information regarding LifeSpeak and its business and disclosures 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, business prospects and opportunities.

Such statements are made as of this date hereof, and LifeSpeak 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 certainties, one should not place undue reliance on these statements and information.

Please refer to the forward-looking statements information and future oriented financial information section on the company's public filings, which include, without limitation, LifeSpeak's MD&A and its earnings press release issued today for additional information.

At this time, I would like to turn the call over to Michael Held, Chief Executive Officer of LifeSpeak. Sir, please go ahead.

[Michael Held, executive]

Thank you, Operator. And welcome, everyone, to the LifeSpeak second quarter 2024 results conference call. I'm pleased to report on a number of positive developments that occurred during our second quarter and subsequent to quarter end. First off, when comparing to the prior 2 quarters, our second quarter of 2024 featured consistent revenue of $12.4 million and adjusted EBITDA of $2.6 million. Our business development efforts and our ongoing focus on prudently managing our costs supported our consistent results. We believe that the business has found a baseline in terms of its financial results, and we are optimistic that we will begin to build off these results in the coming quarters.

Secondly, we continue to see strong interest in our whole-person digital wellbeing services in our second quarter and so far in the third quarter of 2024 because our clients value the tremendous support we provide for their mental health, physical wellbeing and family needs. This interest translated into tangible results, including the signing of agreements in our second quarter with Stepping Stones Group, LIXIL Americas and Los Almos National Laboratory. We also closed an important cross-sell deal with Hoffmaster subsequent to quarter end.

Also, after quarter end, we signed one of the most significant deals in our company's history with GreenShield. GreenShield is a leading Canadian integrated health and benefits organization. We are very excited about this partnership and believe that it can create numerous benefits for GreenShield and LifeSpeak. We can't disclose specific financial terms of this partnership, but this agreement is significant to LifeSpeak in its scale and in its validation of our continued strategy of partnering with organizations that value the services we provide and view them as additive to their own product offering.

And thirdly, as many of you are already aware from our August 6 press release, we appointed Lee Dabberdt as our new Chief Financial Officer effective August 5, 2024. Lee brings to LifeSpeak more than 25 years of financial and capital markets experience, including recently as chief accounting officer at EverCommerce, a leading provider of SaaS solutions for small- and medium-sized businesses. This is a great hire for us. Lee's appointment strengthens our senior leadership team and will augment our ability to scale our business. We believe that our deep and diverse experience will be key for the company as we pursue growth initiatives that have the potential to create long-term shareholder value.

Taken together, these events enforce the confidence we have in our strategy and demonstrate that we're making progress that will create long-term growth. I will now pass the call to our Executive Chairman, Nolan Bederman, who will provide more color on the quarter. Nolan?

[Nolan Bederman, executive]

Thanks, Mike. We believe that LifeSpeak is in a strong position to capitalize on its business prospects now and into the future. Over the past several quarters, we've been very prudent and disciplined with our cost structure without handicapping future growth opportunities. For example, through our integration process over the past several months, we've managed to increase efficiencies in our sales and marketing teams, while supporting our teams with an effective strategy that provides a much broader and more diverse portfolio of products to offer to new prospective customers.

And with Lee's addition, we feel we have the right mix and skill set on the senior leadership team to help the company excel in a macro business environment where corporate spending is showing signs of warming up. A backdrop of declining interest rates is helping on this front. Rate cuts help reduce our cost of capital, but they also unlock funds for clients and prospective clients that can be reallocated to supporting their employees through services like ours. As a result, over the past quarter, we've had more frequent and more urgent dialogue with potential clients about our services than we had at any time in 2023.

Consequently, our pipeline, in number of opportunities and the scale of partnerships remain strong. And as evidenced by our GreenShield partnership, larger strategic deals are beginning to come to fruition. We're looking forward to updating you on our progress in the coming weeks and months.

I'd now like to offer a warm welcome to Lee Dabberdt, our new CFO, and turn it to her to walk through our detailed financials. Lee?

[Lee Dabberdt, executive]

Thank you, Nolan. It's a pleasure to be on my first call as LifeSpeak's CFO. We look forward to meeting many of you in the coming weeks. I was drawn to the opportunity at LifeSpeak, because I believe in the values of company's digital wellbeing services provides to its clients across the world. LifeSpeak has grown to become a world-class trusted provider of mental, physical and family wellbeing solutions for employers' health plans and other organizations. I'm excited to become part of the team and contribute to LifeSpeak's success going forward.

That said, I believe that our second quarter results demonstrate that we have achieved a level of consistency for the business that we can build on. Revenue for the second quarter of '24 was $12.4 million, 6% lower as compared to the same quarter in '23, but modestly higher as compared to first quarter of '24. Annual recurring revenue or ARR came in at $48.3 million. As a reminder, we report ARR on a constant currency basis using a 1.3 CAD/USD exchange rate. Given our overall exposure to the U.S. dollar and the movement in rates through the quarter, we think it's helpful to note that our ARR would have been approximately $49.9 million as of June 30, 2024, when adjusting for the quarter end exchange rates.

To provide a further breakdown on the base of the $48.3 million of ARR, approximately $41.3 million came from our 881 enterprise clients, while the remainder came from the embedded and other verticals. With respect to the geographic diversification, approximately 65% of this quarter's ARR originated from markets outside of Canada and overall, no client accounted for more than 5% of ARR as of June 30, '24.

Both our second quarter financial results, press release and MD&A provide further detail on our ARR breakdown for the quarter and on a historical basis for comparative purposes.

Moving on to adjusted EBITDA. Our ongoing focus on operational efficiencies helped us generate adjusted EBITDA of $2.6 million for the quarter. While this is lower on a comparative basis to the second quarter of '23, our second quarter '24 adjusted EBITDA is consistent with our first quarter '24 and fourth quarter '23.

Our focus on cost management supported a strong adjusted EBITDA margin for the second quarter of '24 at a rate of 21%. While this is a decrease compared to Q2 2023 adjusted EBITDA margin, it is consistent with Q1 '24 as well as Q4 '23, which was 22% and 21%, respectively.

In terms of net loss for the second quarter, net loss was $2.3 million, which compares to a net loss of $6.3 million in the same period of '23. The decrease in net loss is largely due to the change in foreign exchange rates as well as the change in share-based compensation.

In addition to the previously mentioned metrics, we also track other KPIs that continue to help us evaluate our business. Consolidated net dollar retention rate, or NDR, provides a consolidated measure by which we can monitor the percentage of ARR retained from our existing clients. NDR for the second quarter of '24 was 84%, which is slightly higher than the first quarter of '24 at 83% and approximately 5% lower compared to the second quarter of '23. This decrease is primarily due to an increase in overall enterprise client churn, which was offset by cross-sell and multiproduct opportunities within the existing enterprise client base.

Logo retention rate, which is measured on an LTM basis was 75% for the second quarter of 24%, which is slightly lower than the first quarter of '24 at 76% and approximately 7% lower compared to the second quarter of '23. This decrease is largely due to a continued transformation of our go-to-market strategy to focus on larger customer opportunities, given the potential for multiproduct sales as well as a focus on higher margin opportunities, given the cost to service these customers is greatly similar across the size spectrum.

With respect to our capital structure, as of June 30, '24, the company has breached financial covenants, which triggered an event of default with our credit facilities. We are currently working with our lenders to remedy this breach. LifeSpeak has historically had strong relationships with its lenders and intends to continue to work productively and constructively with them going forward. As such, we believe the application of the going concern assumption is appropriate for our financial statements for Q2 '24.

On to our outlook for the third quarter of '24. Based on what Michael referenced earlier on the call and the continued implementation of our business strategy, we anticipate that our results for the third quarter of '24 will be largely consistent with the second quarter '24 results.

Thank you, everyone, for your participation in the call this morning. We will now open the call up to questions. Operator?

[Operator]

[Operator Instructions] It appears that we have no further questions. So I'd like to hand back to Nolan Bederman for closing remarks.

[Nolan Bederman, executive]

Thanks, Charlie. Thank you, everyone, for joining, and we look forward to talking to you again. Thank you.

[Operator]

This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines.