© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the WeCommerce Q1 2021 Earnings Conference Call. The company will make forward-looking statements on the call today that are based on assumptions, and therefore, 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 this afternoon as well as in our filings on SEDAR. Note that the adjusted financial measures we speak to today are non-IFRS measures, which are not a substitute for IFRS financial measures. All amounts referenced in today's call are in Canadian dollars, unless otherwise stated. With that, I will now turn the call over to Mr. Chris Sparling, Chief Executive Officer of WeCommerce. Please go ahead.
Thank you, operator. Good afternoon. As the operator said, my name is Chris Sparling, and I am the Chief Executive Officer of WeCommerce. Today, I am joined on this call by our President, Alex Persson; and Evan Brown, our Chief Financial Officer. Earlier today, after the close of the market, we released our first quarter 2021 results, which are now available on SEDAR. As is our practice in these calls, Evan and I will make a few opening comments and then open the floor for questions from analysts and shareholders. We'll start with the financial review of the quarter. Evan?
Thank you, Chris, and good afternoon to everyone on the call. As a reminder to everyone, we do report in Canadian dollars, and all references to amounts on this call and in our published financial reports, unless otherwise stated, are in Canadian dollars. So let's jump into the financial results. In the first quarter 2021, we generated revenues of $6 million, up 45% year-over-year. Net loss for the first quarter was $1.8 million compared to net income of $100,000 in the prior year. The net loss during the quarter is due to a number of onetime expenses, including finance fees related to the repayment of our term debt and transaction costs related to the acquisition of Stamped. Absent these expenses, net income for Q1 would have been approximately $200,000. Adjusted EBITDA for the first quarter amounted to $2 million compared to $900,000 in the prior period, and cash generated from operations was $1.3 million compared to approximately $900,000 in the prior year. Just after the quarter end, we closed the acquisition of Stamped. We used our existing cash on hand, along with our new debt facility, to finance this transaction. And as of now, we have term debt of USD 40 million, along with approximately CAD 5.6 million cash on hand. At our portfolio companies, which now include Stamp, continued to produce very healthy cash flows from operations. So with that, I'm going to pass it back to Chris.
Thank you, Evan. I only have a few comments before opening up for questions. As Evan mentioned, we closed the acquisition of Stamped on April 6. We described Stamped in detail during our last quarterly call. So I won't go into as much detail this time. I will note that our focus right now is very much on successfully integrating Stamped into the WeCommerce family. And to date, we couldn't be happier with how that one is going. Also, as we announced last month, Evan will be stepping down as CFO in June, and we expect to be announcing his replacement shortly. So with that, I'll pass it back to the operator to facilitate the Q&A.
[Operator Instructions] We have your first question from Daniel Chan with TD Securities.
The MD&A states that the apps revenue, excluding Foursixty, the growth there year-over-year was about 2%. So this is much lower than the overall subscription spend and app store spending growth we've seen from the Shopify ecosystem. Can you just give us some color on the overall organic growth? Like where are you seeing strength and where you're seeing weakness?
Yes. Evan, do you want to address -- you want to speak to that?
Yes. I mean, the overall -- I mean, this might actually be a good one for Alex because this is sort of directly into the Pixel Union apps space and sort of some changes that were made there in late 2020 [ move ] ...
Yes. I'll talk -- I can pounce to that.
Value net pricing. Do you want to do that, Alex?
Sure. Dan, so we mentioned this previously, but in Q4, we switched the pricing for one of our core applications, Ultimate Special Offers. And so what we did there was we changed from essentially a higher fee upfront to a lower free -- fee type. That also has a volume metric component based on a number of orders. And so we did that because the data was showing the LTV would be higher under that pricing and the churn will be lower, but it comes at the expense of slightly lower revenue upfront. And so the initial data there is promising, but it, of course, comes a -- recognized a little lower revenue upfront.
Okay. That's helpful. And can you just remind us, the Ultimate Special offering, like approximately what percentage of your overall revenue that comprises?
For Pixel Union or for the overall?
Yes. For the overall consolidated piece, maybe for all of 2020.
Sure. Yes. I think I can follow up with you on that on a separate call.
Okay. Yes, that's no problem. Okay. And then moving on from that, like some markets have started to reopen, and we're seeing reports of strong spending returning to services like hospitality and travel. Just wondering if you guys are tracking any metrics in those markets that have reopened. And do you anticipate the pace of e-commerce investments to change at all as markets reopen?
I don't think we're necessarily tracking any metrics that would help in understanding of hospitality or anything like that. But I do kind of think that the adoption of e-commerce has been a significant acceleration. And I think it's become more of a household name, and more and more people are not going to break the habit of defaulting to e-commerce first. I'm very excited though that the world is opening up. Myself, I just can't wait to resume life and circling out to restaurants again. But I don't necessarily see there being any adverse effects. With e-commerce being adopted worldwide, we continue to be very bullish with the trend.
Yes. I think, Dan, if I were to add anything there, it would be -- I think there was a clear uptick in the overall trend line in the past 12 months. I wouldn't surprise us if there's a bit of a [ sceneramic ] effect because as people spend more time outside. A lot of our revenue comes from North America, and so the U.S. obviously being one of the leaders in opening up, that could have a short-term effect. But we're not seeing any -- at least we're not tracking any data or seeing any data that would result in kind of the overall trend being reversed.
Okay. That's helpful. And then last quarter, you talked about potentially investing for growth later in the year. Is that still the planned time line? Or has anything changed there?
That is still plan. Sure. That's still very much the plan, Dan. Our core focus for Q2 is integrating Stamped into the WeCommerce family. We put a new CEO into that business, essentially when the transaction closed on April 6. And so I think it's very much status quo in that there's a ton of opportunity in that business. And we plan to invest in that not just for the second half of this year, but we're looking at -- we're essentially looking at everything, from pricing, to sales and marketing, to product development. And so we look at it as kind of a multiyear investment focus.
Okay. And when we spoke last quarter, you mentioned that there wasn't going to be a whole lot to do in terms of an integrating Stamped. What is left to do on it?
I think when I say integrating, it's less so on some of the mechanics we've actually bringing into our family of companies, and more so on ensuring that the right leadership is there and building the foundation for future for growth.
Okay. Evan, just a housekeeping item. There's about $780,000 of acquisition costs adjusted out of the adjusted EBITDA calc. Just what is that related to?
I mean that's pretty much legal, tax, costs involved in -- a lot of it has to do with Stamped. And also, I think there is some -- I don't think there's any hangover from any other acquisitions, so it should all be from Stamped. Yes. So it was a multi-jurisdictional deal. And obviously, we put together a new credit facility as well.
Okay. Okay. Chris, in your letter to the shareholders that you recently put out there, you mentioned that you're merging the Rehash and Pixel Union agencies. Now while you don't assume synergies in your transactions, are there more opportunities like this to increase scale where it makes sense and potentially become more efficient?
I think that there's opportunistic synergies, I suppose. But in the case of Rehash with our -- the Pixel Union agency, it really was spearheaded between the 2 -- well, the CEO and the GM there, just raising their hands and saying that this just seems very obvious for them. And so we encouraged it. We've seen that a few other times recently post acquiring Stamped. There seems to be a very similar connecting of the dots at Foursixty, but we're going to read through and think about in greater detail over time. But we really kind of -- it's not necessarily at the forefront of our thesis necessarily. We're not trying to pay for opportunities that we see through synergies. But opportunistically going forward, yes, they'll -- they could continue to exist.
Okay. Now if we move over to the M&A side of things. Shopify's app ecosystem seems to continue growing at a pretty good clip. Just any commentary around how the M&A pipeline is looking would be helpful.
Yes. I'd say similar to last month, actually, like we're continuing to have a lot of really good opportunities come across all of the different divisions, especially on the software side. Pipeline is very active and -- we're having a variety of different discussions with all sorts of different possibilities with a number of different companies. It's still very, very healthy. And as I mentioned last time and in the letter, we brought on a new person to help manage the overall pipeline just because there's so many conversations happening. But there's nothing I can share at this point.
Okay. Yes. You mentioned in your presentation that there's over $100 million of revenue in the M&A pipeline. What does that mostly consist of? Are those mostly apps? Are those themes? Agencies? Just any kind of color on what -- how that looks?
Yes. Most ...
Alex, you want to speak to that?
Yes, I was just doing -- I was just looking at that, Dan. And you're right, it is mostly apps. But I would say it's -- a good way to think about it is, it's pretty consistent with our overall revenue mix. Obviously, pro forma for the Stamped acquisition, it's probably a good way to think about that.
Okay. That's helpful. Any change in valuation in the pipeline yet?
Yes. No, not necessarily. I don't think so. Alex, anything jump out to that?
No. I think what we shared previously, Dan, it's still very much the case, in that it's a bit of a lagging indicator vis-a-vis public markets. We obviously saw a pretty healthy correction. Some of that's been corrected. But valuations are a little bit all over the place. And that we're seeing higher valuations, obviously, through venture funded companies come almost irrespective of the actual outlook for those businesses, whereas the founder owned businesses that we like tend to be a little more balanced in terms of valuation. So I think the overall average is probably high, but we're still think of ourselves as pretty advantageous given that we focus on those value-add businesses.
Okay. Yes. That's helpful. And has the run-up in valuations also -- well, like you said, overall, the values have run up. Has that also impacted themes and agency companies? And if not, does their valuation of themes and agencies -- is the relative valuation to app acquisition make the themes and agency targets more appealing maybe?
I think they're just such different. I think there's such -- we kind of look at them quite differently in that, theme, we kind of -- we like that ecosystem because it's more or less of a closed ecosystem. But the addressable market is lower than apps, obviously. But apps has broader competition because it's more open ecosystem. With agencies, it's very much a people business, and their scale by combining agencies and specializing. But ultimately, that comes down much more on the people side of the equation. With apps, we've seen valuations really range for those companies and all -- based on scale and margins historically and where we think they can go forward. So I don't know if changes in apps necessarily results in making a themes business more attractive or less attractive, is the kind of short answer to your question, given that we take a much more kind of longer-term outlook, and it's not necessarily what they're trading at this quarter or next quarter.
Okay. Okay. And just a little bit more on Stamped here. I believe Stamped's loyalty app is getting to be about a year old now. I just checked the Shopify app store before this call. And it seems it still have a high rating of 4.7 out of 5 and has about 68 reviews now. Is the -- is that loyalty outperform its expectations? And do any of your investment plans include trying to accelerate that?
Yes. I can't necessarily comment on the expectations. But I think all of that is under consideration as we think about the opportunity for Stamped, whether that focuses on investing further in our products today, bundling, or product innovation, either organically or inorganically. But we're not -- I wouldn't say we're disappointed with the growth in that, but it is still a relatively new business even if it launched last summer. And I would say that because -- sorry, Dan. Just to add, it really wasn't marketed until Q4 last year.
Okay. So still very new. Okay.
It wasn't even added to the website until Q4 last year, little on market. Yes.
Okay. That's fair. And has acquiring Stamped provided you with any additional leads in the M&A pipeline? You mentioned last quarter that Stamped tends to have larger customers. I'm just wondering if you got any additional insight into what might -- what apps might be more popular.
Yes. We got a lot of insight, not just from Stamped, but also through our agency as well as Foursixty as well as just having, I would say, a pretty good network of merchants. So we have pretty good insights into what people are focusing on. There's been a huge run-up. You may have seen this in the number of kind of SMS apps on the platform, a lot of which are growing healthily. Away from that, a lot of it is doubling down, not surprisingly, on ways to retain customers, given increasing acquisition costs, which you've seen in the results of Facebook and Google, which we think bodes well for an offering such as Stamped's. That really helps with reengagement as well as conversion once those customers are on the site.
Yes. All right. Okay. You mentioned Foursixty a bit there. I just wanted to ask a question there. During the roadshow, it was highlighted that the integration of Foursixty with some partners such as Klaviyo and Oquendo would accelerate growth. Is that playing out as expected?
Yes. I think those partnerships had a pretty big uplift. And there could be greater partnerships even within the portfolio of companies, too, that we currently own. But yes, certainly, Foursixty has had a meaningful uplift from those partnerships. Dan, I don't want to stop all the questions from you, but I wouldn't mind opening up to just a few more parties. And if there's any questions at the end, you can rejoin the queue.
[Operator Instructions] We have your next question from Robert Young with Canaccord.
Maybe just talk about the pipeline, the size of targets that are in the pipeline. $100 million-plus can mean a lot. I think Stamped was quite larger than maybe some people expected. And so maybe if you could just talk about tuck-in to large. What that pipeline looks like? Maybe just some color there would be helpful.
Sure. We're looking at all sizes. But it may disappoint you to hear this, but everything from Stamped size to very, very small tuck-in opportunities or even just -- I'd say it's really difficult to give a clear indication of pacing when it comes to size. Alex, anything you want to help paint a picture on for Rob?
Yes. No. I think I mean if we think about -- just like a bell curve, Stamped was clearly an outlier in terms of size, but the ecosystem keeps growing at a pretty healthy clip. So what was in our sweet spot maybe a few quarters ago, call it, $10 million to $50 million maybe of an acquisition size, that's increasing as these companies are continuing to grow and continue to have healthy acquisitions. So while -- obviously, not every future acquisition will be Stamped size. Unfortunately, we can't really comment on exactly what a next acquisition could look like, given that they truly do range from a few million up to $100 million.
Okay. So there are still very -- I mean, large -- at the larger end of the scale, there are some that might be $100 million in size, I guess.
Yes. That $100 million pipeline figure is kind of consolidated revenue across apps, themes and agency opportunities.
Yes. Okay. Okay. Great. And then I mean you talked a little bit about it already, but just the competition. I know you'd said that you'd had faced a little stronger competition on Stamped. But just in general, is there any change in the level of interest from VC or private equity? You touched on a little bit of that on the letter that you put to investors. Maybe any thoughts to whether that's gotten worse or easier, if it's the same?
I definitely feel like we're seeing more increased competition. I feel like more and more people are becoming aware of e-commerce broadly. Shopify, the partner ecosystem, it's just becoming more and more of a household name, which just has the unfortunate side of more and more people are raising capital in various forms and pursuing targets in this ecosystem. At the same time, more and more companies are -- more and more founders are coming up with new ideas and innovating within the ecosystem. And so there's more and more potential opportunities at the same time. So it seem all boats seem to be rising effect.Yes. Alex?
I would add, Rob, [ although ] there's a lot of companies that are not on the -- in the auction process or not speaking to VCs, they kind of come directly to us simply because of the products that we offer. So a lot of people will say to us, we only want to sell to you guys. We're not actively selling.
Okay. So still a lot of confidence that you can convert that pipeline? That competition hasn't changed that?
Yes. Maybe just to think what -- sorry.
Go ahead, go ahead.
I was just going to say, what we highlighted in the letter was that we kind of have a fundamentally different product. So even if there's increased interest in VC and private equity and strategic acquisitions, we still think what we offer is pretty differentiated.
Right. Okay. And then the CEO transition at Stamped, I know it's super early, but is there any benefits you're seeing from initial changes? I think you said you're going to invest in the -- some of the customer acquisition process and customer success or support. And maybe that's -- it's too early to ask for that, but I thought I'd take a crack at it.
This is what? Stamped, you're asking?
Yes. Stamped, Stamped.
Yes. I'd say it's going well. Like Andrew Dumont, the CEO of Stamped, is doing a great job. And he really has a good lay of the land in a pretty short time. There's so much opportunity here though. Yes. I'd say that, as Alex was kind of indicating, we do have a multiyear investment plan for that business. And we're looking at everything, from pricing, to sales and marketing, to product innovation. And I think I kind of touched on this last call or last month, but to the adage, what gets measured gets managed, comes to mind here. And Stamped, as it was before, it wasn't measured much, and as a byproduct, hadn't been managing much within the business. They were really just focused on building the best product possible. So we look at this. And Andrew Dumont has his arms full because it's a smorgasbord of opportunity here. Alex, anything more you want to kind of touch on? It's tough to kind of overpoint to necessarily one specific avenue being pursued because there's a lot going on. But Alex, any thoughts?
Yes. No. I think it's a little bit too early to tell. We've owned the business for less than 2 months at this point. So we hope to share actual information on results and some of those initiatives and the impact of those initiatives in the coming quarters, Rob.
Okay. Yes. That's fair. It sounds like you're excited about the potential though. I think that's all the questions I have. Maybe last one, just to wrap it up, just on the CFO search. Evan, you're on the call today. I mean just what happens? I think you'd said June was the transition. Are you going to have maybe an overlap? Or are you going to see a situation, Alex, where you're going to step into the CFO role? Or will you have a good level of overlap? And then I'll pass the line.
Yes. I was going to say the CFO search has been going quite well. We've been meeting with a number of different candidates. And we're hoping -- we're aiming to have some good news to talk about shortly. The candidates all very interesting. We're pretty excited. Evan, do you want to speak about the transition?
Yes, for sure, Rob. It's -- I'm not -- yes, I'm not going anywhere imminently. So here to transition that person over the next coming months. That's what it is. So I don't think at this point, there would be a transition now where Alex steps into that role at this point.
[Operator Instructions] I'm showing no further questions at this time. I would like to turn the call -- conference back to Mr. Chris Sparling, Chief Executive Officer, for any closing remarks.
Wonderful. Thank you, operator. I think that there's been some great discussion here and some really good questions. And as you guys can see, we're still pretty excited about Stamped and the direction that we're going to be taking the business over the coming time. If there's any other questions that anyone has, you can feel free to e-mail us, and we're happy to make time for you. We'll leave it there. Thank you, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.