MediaValet Inc
TSX:MVP
Earnings Call Analysis
Q3-2023 Analysis
MediaValet Inc
Despite the macroeconomic challenges, the company has demonstrated resilience and growth, with a 26% increase in revenue to $4.1 million for the quarter, and a 31% increase to $12.1 million over the first nine months compared to the same period last year. This growth is primarily driven by strong new customer acquisitions and robust net dollar retention rates from existing customers.
The company completed a strategic restructuring in Q3 which not only reduced operating costs but also improved the company’s operational focus and execution. Adjusted operating costs have seen a decrease, contributing to a 51% reduction in adjusted EBITDA loss for the quarter. The focus remains on growing revenue while managing cost structure efficiently.
With the digital content market experiencing a content deluge, demand for the company's Digital Asset Management (DAM) solutions continues. The product offering has evolved, supporting a range of assets far beyond just images, tapping into increasing needs for integration and expanding use within various departments. Investments in product innovation remain strong with a variety of upcoming launches featuring AI capabilities and enhanced user experiences.
The company’s focus on customer success has resulted in net retention rates over 100%. The emphasis on customer adoption and expansion through new product modules like 'MD Direct' along with potential pricing leverage, signal a strategy towards driving uptake and revenue per customer. With product roadmaps and strategic vertical focuses aligned, the company aims to exceed 100% net retention and targets best-in-class SaaS rates in the near future.
Aiming for billings-based cash positive operations in Q4 '23 and fiscal 2024, the company is on track to position itself well for future value delivery. With $0.4 million in cash on hand, a decline in credit line utilization, and a strong pipeline of product innovations, leadership expresses confidence in achieving profitable operations and capitalizing on their strategic initiatives.
The company's pricing approach, packaging, and new offerings like cold storage aim to cater effectively to larger enterprise deals. A combination of customizable offerings and competitive pricing, supplemented by a drive towards organic growth through SEO over paid advertising, underpins the strategy to capture more significant market shares and sustain the growth momentum.
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Good afternoon, everyone, and thank you for joining us this afternoon for MediaValet's 2023 Third Quarter Conference Call. Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company's 2023 objectives, the company's strategy to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the 2 can be found in our MD&A, which is available on SEDAR and our website. We are joined today by MediaValet's CEO, Mr. Rob Chase, as well as the company's CFO, Mr. Dave Miller.
With that, I will hand over the call to Rob to provide his opening remarks. Please go ahead, Rob.
Thanks, Babak. Hello, everyone, and thank you for joining us for today's earnings call. I hope you've had a chance to review our press release and financial reporting materials, all of which are available on sedar.com. With me today is our esteemed CFO, Mr. Dave Miller, Together, we will provide a business update and review of our key financial and Software as a Service performance metrics. We'll then open it up for questions. As quoted in our Q3 press release, I'm pleased to report that we have continued to deliver in the face of challenging global economic conditions. Revenue and ARR continue to show strong growth, while our operating costs have reduced following our Q3 strategic restructuring. I believe our performance reflects: one, the strength of the down market, which continues to be robust due to long-term tailwinds from the digital transformation that all organizations must undertake to be successful today and two, the strength of our restructured MediaValet team and our owned vision.
I am proud of what our team has accomplished this quarter and year-to-date, including urgently executing on our strategic restructure, driving impact for our customers and optimizing our operations. Despite a challenging macroeconomic backdrop, our execution has enabled us to deliver our third best quarter ever for net new ARR, which included some exciting new customer announcements and some foundational projects such as our new brand and website, our community building projects and progress on our critical product and service delivery road map to bring our HotDAM! vision to life. Combined, these initiatives are enabling us to reach new heights in customer acquisition and net retention. In terms of the overall trends in DAM, marketers are required to build rich digital content pipelines to reach their target audiences and to achieve their organizational growth objectives. While there are many tools effective in targeting their audiences, they all require quality content at scale to reach and compel these audiences to act. Producing content at the required scale, speed and efficiency is simply not achievable without a doubt. When properly implemented, a DAM can significantly enhance productivity, not just for the marketing team, but for every employee in the organization such a system is essential for organizations with its importance only heightened by today's challenging economic conditions. These market dynamics are apparent in our 2024 HotDAM! trends report. Now in its second year, this report compiles insights from our customers and potential clients, offering a direct perspective on the future of DAM from key stakeholders. The inaugural report was so impactful that we've had a fivefold increase in participation this year. This surge in interest and participation has yielded an even more comprehensive data set for this year's report. If you've not seen the report, you can download it from our website, it's definitely worth a read. Some of the highlights include, as expected, DAM continues to be a must-have for marketing and creative teams. It simplifies their jobs and enables them to spend more time on adding value instead of managing and responding to request for content. Not only do they save time, but their users across the entire organization also save time and are empowered to seamlessly build impactful information packages to reach their audiences. The organizational need for rich and dynamic content has resulted in a content deluge. The sheer volume of content being created is resulting in chaos for not only the organization but also for their audiences, which is a key driver for down purchases. More assets are coming as types are coming to DAM. DAM was once only for images and now supports assets of all types, including text documents, presentations, videos, audio 3D and source files. Video is a particular importance and an area that we are leaning into from a product perspective. Participants highlighted an increased need for integration to streamline and optimize content distribution and collaboration across their entire tech staff. This unlocks value for the customer and increases the stickiness of the DAM. Finally, DAM is increasingly being used to support the needs of other departments. This also opens opportunity for DAM to be a tech consolidator. For example, we use our MV DAM in place of using board management software, and many customers have used it as an Internet or even as an invest management platform. We have architected the MV DAM from the beginning to enable these use cases at the heart of which is our best-in-class ratings for security, scalability, ease of use and support. Another Q3 milestone that recently came to fruition is our MVP Awards week. This is the first year of this program, and we couldn't be happier with the results. The customer submissions for the awards were both amazing and inspiring they mirrored the findings in the 2024 DAM trends report and speak to the broad value that DAM can unlock for customers. You can see some of the experts from the winning submissions on the slide. These use cases are fundamental to our HotDAM! vision. Our strategic restructure, which completed in Q3 is also about bringing increased focus to our HotDAM! vision through clear ownership of the key aspects required to bring these experiences to life for all customers. Doing so is a key part of our mission, which is to be #1 in DAM adoption. The DAM trend support and the -- awards highlight our success in attracting new customers and expanding our current customer base. We have an enviable customer base of over 525 customers with over 70,000 users who rely on the MV DAM to manage their assets and engage their target audiences with impactful content. Our ability to manage and maintain net retention rates of over 100%, even amidst economic conditions that have adversely affected churn rates for SaaS companies stands as proof of the significant value that we deliver to our customers. Our success in serving these customers stems from the strength of our architectural backbone. We have achieved the #1 ranking in security from security scorecard and have been recognized as the top enterprise DAM by G2 Crowd. These accolades have been crucial in securing the large-scale customer engagements we've recently announced. As DAM continues to evolve beyond marketing functions, we anticipate that our commitment to security worldwide accessibility and detailed user control will continue to set us apart from our competitors. Looking at what's ahead with our strategic restructure behind us, a strong reference base of customers and a proven track record, we can't help but be excited about the future. The stage is set, and I'm confident that we have the right team in place to continue to deliver. As we look ahead, here's a few things to expect from us, impactful product launches. We have honed our HotDAM! product road map to match the needs of current customers and prospects and to unlock the expanded use cases for DAM beyond marketing. The array of features, capabilities, enhancements slated for launch in the coming year is truly inspiring. The impact starts in Q4 with the launch of our new mobile upload and personalized user experience. It continues in Q1 2024 with new granular user and access controls and workflow integrations and it includes launches in every quarter in the year ahead. The main themes of these launches are more user activation and tailored business solutions enabled by new AI capabilities, more granular controls and permission groups, more personalization for ease of use and more access and security. Combined, they set the stage for broad business adoption as DAM evolved into a platform for organization-wide secure content curation, collaboration and sharing. More new customer wins. We will continue to evolve our go-to-market strategies, leaning into verticals where we're strong and continuing to build a community of DAM users and partners. Our new branding and website launched in Q3 as an example of these initiatives as are our Trends Report and Awards program. We'll also be working closely with our partner ecosystem to deliver new integrations and to augment our direct marketing. Together, we expect these initiatives to help us continue our customer wins like the [ Fording ] customer announced November 6, that we won away from a competitor. Strong net retention rates. One of the key areas we improved via our strategic restructure was our product and services delivery. We have increased the voice of the customer throughout the organization and have accelerated initiatives to unlock customer growth opportunities. We believe this will enable us to exceed 100% net retention in the year ahead and is a key part of our long-term initiatives to attain best-in-class SaaS rates, which historically are in the 105% to 110% range. Execution and cash flow. We have streamlined and optimized our operations to align with delivering balanced growth. With our bridge financing in place and positive cash from operations expected in Q4 2023 and for fiscal 2024 as a whole, we believe we're well positioned to deliver value for our employees, our customers, our partners and our shareholders. With that, I will pass it over to Dave to take us through our key metrics and financial results. Dave?
Thanks, Rob. And good afternoon, everyone. Thank you for joining us today. We are delighted by our financial performance this quarter, which continues to demonstrate the strength of the overall DAM market and robustness of our product offering as highlighted by Rob, as well as the resilience of our business model in today's challenging market conditions. In Q3 2023, our revenue grew by 26% to $4.1 million compared to the same period in fiscal '22 and was up 2% compared to Q2 '23. As of the first 9 months of 2023, revenue was up 31% to $12.1 million compared to the same period in 2022. The Revenue growth was attributed to improved mid- to large enterprise new customer wins, strong net dollar retention above 100% from our existing customers in addition to continued relative strength of the U.S. dollar to Canadian dollar. Gross profit increased by 25% for Q3 '23 to $3.3 million and increased 29% to $9.7 million for the first 9 months of 2023, compared to the same periods in 2022. And gross margin as a percentage of revenue continues to remain strong at 81%.
Moving on to adjusted operating costs. a non-IFRS measure, which the company defines as sales and marketing, research and development, and general administrative expenses, excluding share-based compensation, depreciation and other non-recurring expenses. Adjusted operating costs for Q3 '23 decreased by 10% to $4.5 million and were down 1% during the first 9 months of 2023 to $14.7 million compared to the same period in fiscal 2022. The decrease was primarily as a result of head count reductions and cost management initiatives that were implemented during Q3 and throughout fiscal 2023. Our focus is to continue delivering solid revenue growth while managing our cost structure. This prudent and disciplined approach has resulted in a 51% reduction our adjusted EBITDA loss for Q3 '23 to $1.1 million compared to $2.3 million in Q3 '22. For the 9 months ended September 30, 2023, our adjusted EBITDA loss is down 32% compared to the same period in 2022. The resulting in lower utilization of our credit line facility below our expected level, providing ample credit room available to bridge us to cash flow positive operations. Turning now to some additional non-IFRS measures at September 30, 2023, our annual recurring revenue, or ARR, was $17.4 million, up from $13.7 million at September 30, '22, representing a 27% growth year-over-year and up 7% sequentially from $16.3 million at June 30, '23. The continued growth in our ARR is a testament to the strength of our MediaValet team and vision. As Rob previously highlighted, our HotDAM! product road map continues to resonate with existing customers and prospects as evidenced by our strong net retention and success in new customer wins, resulting in our third highest quarter of all time of net new ARR. As of September 30, our total billings for the last 12 months have increased by 27% to $17.7 million. As we enter our seasonally strongest quarter for billings, coupled with the momentum from our streamlined cost structure, we are well positioned to achieve our goal of billings-based cash positive operations in Q4 '23 and fiscal 2024. Moving on to our balance sheet. We ended the quarter with $0.4 million in cash and cash equivalents on hand compared to $1.4 million at September 30, '22 and modified working deficit of $1 million compared to $2.9 million at the end of September 22. In addition to our cash balance, we have a [ senior ] secured revolving operating credit facility of up to $9 million. As of September 30, 2023, $2.4 million was drawn against the credit facility which as highlighted earlier, leads us with more than sufficient access to capital to continue executing against our key revenue growth initiatives while providing us with a clear line of sight to strong profitability in our business. With that, I'd like to thank you again for listening and open it up to questions.
[Operator Instructions] The first question comes from Christian Sgro of Eight Capital.
I'll start on the seasonally strong Q4 coming up, usually, as you mentioned, one of the stronger revenue and billings quarters as well as collection cash generation as well. You may point out that the macro has been confusing for other software companies. But from your seats, how is the pipeline just now into Q4 and how conversations with customers? And then do you think this could be a record for the year after a strong Q3?
Thanks, Christian. Great questions. And yes, I mean, I think what we're seeing out there is that the market continues to be challenged. Certainly, we're seeing elongated sales cycles and increased churn like every other SaaS organization out there sees. But -- and we've got a solid pipe. I think October was the best month we've had in over a year in terms of new sales qualified opportunities being traded. So there's definitely some interest in activity. And in fact, the new deal that we announced early in November, since it's a 41-day sales cycle. So that was a bit -- we do have some bright spots. It will just depend on how many of those bright spots come through in time for Q4. The pipeline is there. But again, it just depends on how fast we can pull them through, knowing that oftentimes, it's not always in our control as customers are putting things through increased scrutiny as they have been all year. Multiple departments involved in decisions and really organizations need to be able to show how this is helping with tech consolidation and ROI, right? So overall efficiency of the organization. Anyway, we come well on there, and we come out well on security, extremely well security, which is getting more and more important. But it's just more people at the table for the decisions, right? So we'll see. We're cautiously optimistic, but -- and we're fighting hard and doing everything we can to get us there.
That's all helpful. I wanted to talk about that November customer win. I believe that's the global leader in the public safety sector. One of the largest wins ever certainly year-to-date. Maybe just give you a chance to unpack some of the details around the conversations. If it was a competitive process or not. It sounds like the sales cycle was quick -- could you just walk us through, I guess, that win from end to end and what helps you...
And just to be clear, we've got two different ones we're talking about here -- so the one -- and they're getting a little bit mixed up. So the latest one in November is actually a Q4 deal. And that's the sporting agency, nice size customer that a couple of years ago, they actually rolled out their very first DAM, and they rolled out with a competitor of ours. And our BDR team did a great job of staying in touch, and this customer has a very strong video use case and one that the incumbent was unable to truly support. So yes, 2 years on from not winning the customer, we were able to win the customer and bring them over to MediaValet, which is super exciting to unsee the competitor, especially so quickly from when we reached out and started reengaging just 41 days. So timing was great. The other one you're referring to, the larger one that was actually, we did announce it in October, and it was indeed a September deal and a fantastic opportunity for us. We love these kind of customer opportunities. It's truly an enterprise-class organization. And we're -- like we're coming in through the marketing team really to do a better job of helping them with that content dilution and ensuring they're filling their content pipeline with the right materials at the right time on point to go and further their brand and present their vision properly to all their stakeholders and prospects and customers and employees, et cetera. So the typical thing there. What's a little bit different is they already have the view that DAM needs to expand across the organization in a bigger way. So we'll be looking forward to quickly delivering on the vision in terms of how we support the marketing team. But the real strategy here is to grow with that customer and unlock the additional user groups and permission groups to be able to expand that use case the organization. So really excited about this win. It could have been larger in the first get-go here as well. But I think we've got a good line up ahead in terms of how we'd like to grow the account in the years ahead.
I'll ask one more question before passing the line and this one point for Dave. But the restructuring effort in August, it looks like it's already come through in profitability, which is great to see. So my question would be Q3 is probably a good run rate to start from in terms of what the current OpEx profile looks like if there's some more cost to come out just as it spills into the Q4 quarter or how kind of OpEx is trending into the end of the year here?
Yes. No. Thanks -- so yes, no, we are expecting pretty much flat OpEx into Q4. There are some initiatives that were hired some program spend on marketing that was a little higher in Q4 that we won't see in Q3 that we won't see in the Q4, but on a -- if you compare the adjusted OpEx spend in Q3, that should be a good proxy for what you can expect into Q4.
And Christian, I might just add one more thing on your comment on the strategic restructure. It's -- well, yes, it's helped us streamline our operations. What I'm most excited about has enabled us to do more with less. And that's coming from the clarity and ownership that we've been able to drive across the organization through the restructure and it's just it's been a night and day change across the organization in terms of how we're we can jump on things that matter and get them done. So very excited about what we can do in the year ahead. Following that restructure. So while yes, it streamlined operations, to me, the biggest and most important piece of that is what it's done for our ability to deliver.
And no shortage of sales staff in proportion to your total head count and the product pipeline seems to be full as well. So full team ahead. Full team.
The next question comes from Graham Smith of Cormark Securities.
So just on the first one would be -- you've mentioned that you're working on packaging and pricing dynamics to kind of help win these larger deals, and it seems like you guys are having some success. Can you just talk about how that's progressing?
Absolutely. Great question. I mean pricing can be a real advantage for us. And part of what we try to do would be easy to work with, right? We want to make sure that customers come first. And if a customer wants a multiyear deal, we'll gladly sell them a multiyear deal, but we're not going to push a multiyear deal at them. In fact, this quarter was great for multiyear deals, too. We didn't have multiyear billings for most of them, but we have many 2- and 3-year contracts signed with annual billings, which is really exciting to see. It gives us time to really build that beachhead within that customer. In any event, I've lost my train of thought. I'm so sorry, going off on attendance for you. But can you repeat the question?
For sure. It was just on the pricing and...
Yes, again, I was getting down to the ease of use. So pricing has been an advantage for us because we simplify it by pricing -- and the reason why that simplifies things is because really the value we're delivering is compute. It's the bandwidth. So it's the bringing to life of the storage that matters. So what we've coupled in our pricing is both a storage piece which is a commodity, combined with the value created through all of the use of the system. So all the AI we apply, all the searches that we enable, all the branded portals and downloads and things that we enable you to share with your communities. We have one customer, for example, kicked off a project in August with respect to their Halloween initiative created a branded portal for their partners to come in so they could understand what to build for that project. 1,225 individual partners came to access that, downloaded all of that information and built the project next thing you know they're uploading 80,000 assets in October associated with the project. So is this that usage of the system is really what we're trying to charge for, but we simplify it rather than the customer having to say. Okay, how much bandwidth do we need plus how much stores do we need? We just use a proxy on about terabytes of what we think they're going to be needing. And that just simplifies the world for the customer. They don't have any surprises. We make -- it makes us easy to work with. But when we get into some of these larger opportunities, now we have the opportunity to decouple some of that software storage piece so that we can charge a lower rate on the storage piece alone and isolate compute for them separately and bandwidth separately. So that does give us some additional pricing flexibility as we get to larger deals. And down the road, we will memorialize that in a bit more of a set schedule, but it does enable us to tackle these large deals. And in addition, we've also brought out cold storage that is enabling us also to handle some of these massive libraries that are out there.
That's great. That's very helpful. Just as well then on like sort of your new marketing strategy that you guys have been rolling out? I know you guys have mentioned some new strategies like focusing on SEO versus pay-per-click. I was just wondering if you could kind of give an update and some color on how that's progressing, if it's efficient. That would be great.
That's a great question, and I don't know if update keep that up with you somehow, but thanks for asking. Because it's an area that we're excited about. So we're really focusing on building community. And we're really trying to make sure that it's SEO that's driving the results not PBC. It's expensive to buy AdWords. So the more you can rely on paper flex, thought pieces, leadership in the industry. The more efficient we can be at driving opportunity. In the summer last year, I remember coming in and type MediaValet into my browser and one of our competitors came up first because they bought our name outbid us, right? So you don't want to be in bidding wars all the time for this stuff it gets expensive. We're trying to be smart with it and really develop our thought pieces, our leadership in the industry to drive SEO and that's where the huge value comes in and the highest ROI versus just blindly buying ad words and drawing money away in our view.
That's fantastic. And then I just have one more. So just with all these new products kind of being rolled out I know you guys are targeting NRR, obviously growing above 100%. I was just sort of wondering how the upsell on the base is progressing. Maybe if you see any ability to kind of like expand pricing in general, just with those new product rollouts. If you could maybe just talk about a piece of that, that would be fantastic.
Yes, absolutely. And so just firstly, on price increases, we have done price increases in the last year, and we're curtailing a fair bit of those now again, it's tough for our customers out there, too, and we recognize that even though we've continued to add additional value into the solution. But the way to drive price increases is truly going to be through adoption, both of the DAM itself, but also adoption of the new modules we're bringing out like face as an example. We've been successful at upselling that into our customer base for some customers, it's very impactful. There's some additional AI capabilities coming down the pipe as well that we'll release in 2024 that some customers are using on a beta basis that will provide additional upsell path. And so we're really, in addition to other features and modules. I mentioned on the call that we run our Board using MediaValet as a Board management module board management software solution. And we can package that up for customers and things as well. So there's business solutions. There's also the new features we're bringing out that we'll use to upsell. And that's an area with the change in leadership that we've had, our CX team now reports into our CRO, and it's just bringing that additional sales mindset into the group to help us on target customers for expansion. And at the same time, we -- the other way to accelerate expansion is through adoption. And so really, we're focusing on the use case activation across our customer base. We're delivering some additional tools that help them to adopt the DAM faster, such as our new MD Direct, which is an uploading tool that just accelerates and simplifies the process of putting mass amounts of data into our cloud. Customers have been wanting that for a while. We've now just about to release that in GA, and we believe that's going to be instrumental in helping increase the rate at which customers fully utilize the DAM capability they purchased and accelerate, therefore, the time to extension. So lots of initiatives going on there. Really excited about what that team can do now that we've, again, clarified the leadership there and have just that mindset that we're going to go get there. So very excited.
Gentlemen, there are no further questions. I would like to thank everyone for joining our call this afternoon. Rob, I'm handing the call back to you for your closing remarks.
Thanks, Babak, and thank you, everybody. Christian and Graham, thank you for the great questions. Really appreciate your engagement. And I hope it helps everyone understand why we're so excited about the future for MediaValet and we're looking forward to updating you on our progress in the months ahead. Thanks again for attending bye everybody.
Thanks, everyone. This concludes today's call. You may disconnect now.