Q2 2023 Q4 Inc Earnings Call
My name is Edward Miller, and I am the head of Investor Relations at Q4, I'm joined this morning by Darryl heats, our CEO and Don at the winter our CFO to review our second quarter results.
Please note a copy of today's presentation will be available on our website.
Please be aware today's prepared remarks are being hosted live on Wednesday August nine 2023 at 930 a M.
Following the prepared remarks, Daryl and Donna will host a live video Q&A session with the analysts.
We need to remind participants that certain information discussed on today's call may be forward looking in nature.
Such information reflects the company's views with respect to future events.
Any such information is subject to risks uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward looking statements for more information on the assumptions related to the forward looking statements. Please refer to Q4 as public filings available.
Philip on SEDAR.
During the call we will reference certain non <unk> financial measures. Although we believe these measures provide useful supplemental information about our financial performance.
They are not recognized measures and do not have standardized use under ifr S. P.
Please see our N DNA for additional information regarding our financial measures, including for a reconciliations to the nearest <unk> measures the.
The information related to some of the forward looking information presented today was sourced using generative AI.
Please note that unless otherwise stated all figures are in U S dollars.
I will now pass it over to our CEO Daryl Daryl.
Daryl.
Thank you Ed and good morning, everyone. Thank you for joining our Q2 2023 earnings call.
To get started.
I want to first congratulate the Q4 team on their execution this quarter I'm extremely proud of how our team is performing across the business and what remains a challenging macro environment. The team executed exceptionally well at expanding relationships with clients driving platform adoption and expanding average revenue per account.
Combining this with our highly successful expansion strategy led us back to double digit growth this quarter the.
The structural changes we implemented to optimize costs also played a key role in enabling us to achieve exceptional gross margin expansion, reaching an impressive 68% at the end of Q2.
Additionally, these changes brought about increased efficiency in our operating expenses positioning us favorably for enhanced operating leverage in the latter half of this year.
While overall capital markets activity remained low during the quarter, we continued to see improvements over prior quarters.
<unk> IPO listings increased with successful debuts by Q4 clients, including Teva savers value village for Dallas and Phoenix.
We remain encouraged by this increase in IPO activity and look forward to seeing further momentum in the market over the second half.
This year.
This morning, I'd like to review, where we are against our plan demonstrating our progress by leveraging proof points from our Q2 results as well as the future opportunities they are helping to create <unk>.
Today, we are better positioned than ever in our history strategically operationally and financially to capitalize on improving market conditions.
But we are not dependent on this turn or waiting for it to happen.
As always our priority is supporting our clients' Investor Relations goes through there are innovative technology actionable insights and steadfast commitment to their success.
In the second quarter, we launched a new client testimonial program that we call. This is how you I R.
Which highlights the success, we have helped enable for our clients.
I want to take a moment to thank the clients that have participated in this campaign. This positive feedback reinforces our ongoing commitment to helping our clients win in the capital markets and delivering exceptional client experience at all touch points across our platform.
We also value our clients perspective, and appreciate the opportunity to hear their feedback on our platform products and service through.
Through our partnership with our clients that we're able to learn iterate and improve across the entire business. So a big thank you to all of our clients.
Moving onto the product if you've been following us for a while you've heard us speak about the Q4 platform. Many times is what we've been focused on building for the last couple of years and is designed to transform the way issuers investors and the sell side effectively connect communicate and engage with one another.
I'm pleased to report that we recently crossed over 2000 clients are actually using the Q4 platform to manage their IR communications and investor engagement.
During the quarter more than 50 million investors access investor websites email alerts and events across the platform and with over 365000 investor profiles clients are able to not only communicate but identify institutional investors across the platform.
To keep our platform is central to our growth strategy and you'll continue to see us expand our predictive workflow data and analytics over the coming quarters. We have an exciting roadmap ahead and I can't wait for our clients to experience the benefits this will bring.
Today to keep our platform drives thousands of our websites earnings events and related capital markets activities across our client base, serving over 15 million investors a month.
The key differentiator in our platform strategy is that all of the data and analytics, it's unified across all of these capital markets experiences, which enables us to provide a set of workflow tools and analytics to help our clients manage all of their engagements with the street.
Across the bottom you can see each of the products that run on the Q4 platform, including website management earnings lifecycle events management engagement analytics and IR CRM.
These solutions help our clients in a number of ways, including how they use their investor website to communicate and engage with investors delivering flawless earnings and related investor events, and finally, how to identify and target their REIT investors at the right time.
All of these tools work together driven by our unified data and analytics, helping to drive relative valuation for our clients.
As I'll cover in a moment AI has been a few infused across the platform and bringing new and exciting capabilities to further drive impact for our clients.
I'll now take a few minutes to provide an update on some recent product innovations.
We made significant enhancements to the web management application, providing a faster and more secure way for thousands of our clients to manage their IR website in today's fast moving markets. We know that all IR teams need the ability to update their IR web sites with speed and accuracy.
During the quarter, we saw 54% increase in the number of clients using the web management App from last quarter, and we experienced a 22% increase in actions executed by clients over Q1.
It simply means that significantly more clients are using the app and these clients are doing much more through the app.
This helps us deliver rapid and accurate service experience and one of the most important aspects of our relationships with our clients.
We announced the launch of a new application called earnings lifecycle on the Q4 platform. This application aims to streamline the entire earnings process for iras by providing enhanced visibility and a unified workflow. The earnings lifecycle application allows clients to make precisely timed and accurate earnings related website updates in a secure and confidential environment with.
This new offering coupons redefining the earnings lifecycle by providing a centralized workflow that aligns with clients busy earnings schedules.
The highly secure experience insurers the confidentiality of material information shared on websites and provides accurate and timely management of all stages of their earnings process, including detailed reporting to leverage data and increase engagement among investors.
Q4 launched engagement analytics earlier this year designed to provide our clients with the ability to deeply understand their investors their behavior and that of their peers.
This quarter, we announced enhancements to a focus on institutional targeting this new functionality allows arrows to gain insights into how specific institutions interest in their company is changing over time and how it compares to peers in their sector or market cap.
The proprietary data and access to thousands of global issuers provides <unk> with the ability to evaluate the effectiveness of their targeting efforts and uncover untapped investor opportunities.
These enhancements aimed to help <unk> connect with the right investors at the right time, ultimately driving increased levels of institutional awareness before its commitment to leveraging industry, leading proprietary data and developing artificial intelligence offerings further strengthens our position as the leading capital markets access platform.
You already witnessed the positive impact of these enhancements are having on our clients' investor relations efforts and are eager to continue to expand upon these analytics to provide even more value to our clients.
There have been 370000 Q4 accounts created by investors over the past nine months and Q2 alone 85000 accounts were created.
This feature enables investors to easily sign into events without the need to register each time before accounts improves the engagement experience between investors and corporate IR Department.
We anticipate continue anticipating growth in Q4 accounts throughout the remainder of 2023 and beyond.
The Q4 I, our CRM continues to provide innovative solutions that drive satisfaction for our clients. In fact, we recently published two case studies with our clients' remedy and Zara that detail, how CRM helped them to scale their teams time and impact and deliver solutions to support an active targeting program.
You forgo our mobile App that launched last quarter has seen swift adoption with approximately 300% growth in app downloads and a 400% increase in sessions since inception.
The mobile App delivers access to key CRM workflows that are fully integrated into the Q4, CRM, including identifying contacts advanced search capabilities and meeting management.
It's built from the same unified data and insights found on the <unk> platform, ensuring its scalability in the future and the potential to interface with other critical workflows like events or analytics.
We have made tremendous progress on pioneering generative AI tailored specifically for Investor Relations tab.
This will help IRA search navigate and summarize workflows and data more effectively we look forward to sharing more details on this generative AI as it nears launch later this year.
We have been showcasing the beta them up to several of our top clients stakeholders and members of the sell side and the feedback has been extremely positive.
In fact, the early drafts of this script, we were using for todays call for todays call and our prep for an analyst Q&A were generated by the Q4 AI.
Saving our IR team a huge amount of time in preparation.
We are confident that we are able to continue to <unk>.
Combined our proprietary data and product workflows, AI will give us the ability to both save our clients a significant amount of time, while also enabling them new insights and recommendations on how to engage investors most effectively.
We're super excited to bring these to market very soon.
I'm pleased to announce the appointment of Tim stall as our new Chief revenue Officer. This quarter, Tim is a seasoned SaaS sales leader, who will be invaluable in aligning our revenue related functions enhancing our go to market strategy and maximizing sales performance and we're just thrilled to have him onboard.
Both Tim and Keith Reid, who was appointed as CFO in April have made significant progress in our sales and operational efficiencies. This quarter, we expect their contributions to accelerate cross selling and up selling at the end of Q2 more than two thirds of our errors generated by clients using two or more products and momentum continues into Q3.
Additionally, Dorothy artery, our Chief people officer was recognized by the global Mail with the Best Executive Award for her exceptional leadership Dorothy is dedicated to building a supportive and inclusive culture at Q4 and I'm proud of her success.
And with that I'll now pass it over to Dana to take us through the Q2 financial results got it. Thanks.
Daryl and good morning, everyone.
We made significant strides in Q2, delivering 10% revenue growth year over year gross margin improvement of 1100 80 basis points.
At 68, 3% and in ARPA expansion of 12%.
The progress made by our team in Q2 represents another major step towards sustained profitable growth.
Looking ahead to the second half of 2023.
Back to the broader capital markets activity, we expect continued revenue momentum and margin expansion.
The deliberate actions, we've taken to significantly lower our operating expenses are improving our visibility to both positive EBITDA and cash flow by the end of 2023.
I will take this time to dive further into the second quarter results, following which Daryl will conclude on the future opportunities for the organization and please keep in mind all figures are in U S dollars, so let's start with revenue.
Total revenue for the second quarter was $15 1 million or 10% year over year increase compared to $13 8 million in the second quarter of previous year.
Accelerated growth can be primarily attributed to new and existing clients adopting the Q4 platform to utilize web management services.
S engagement analytics.
<unk>, sorry events platform and clients purchasing additional value added services.
In the second quarter, the capital markets platform revenue grew 8% to $13 6 million from the comparable quarter last year.
Platform services expanded by 27% year over year to $1 5 million for the second quarter.
Driven in large part by increased demand for website services.
As committed we continue to execute our gross margin expansion strategy targeting several initiatives.
I am pleased to report that our gross margin for the second quarter was 68, 3% and 1100 80 basis points expansion.
This is the sixth sequential quarter of margin expansion with a strong trajectory tracking to reach mid seventy's by year end.
The compounding of revenue growth and gross margin expansion.
Is delivering 32% year over year gross profit growth.
With our prior initiatives delivering two thirds of the increase.
Our Latin America operating center has surpassed our expectations, giving us the ability to leverage the strong talent pool, while maintaining anticipated cost improvements.
And we expect advancements in our platform technology to contribute equally to further margin expansion with automation of critical IR workflows.
Along with expanding margins, we remain committed to delivering additional cost reductions to further strengthen adjusted EBITDA, leading to positive cash flow by year end.
In the second quarter, adjusted operating expenses, excluding depreciation and amortization foreign exchange loss and other expenses totaled $14 1 million down from $16 4 million year over year.
Cost reduction initiatives executed in May had only a partial impact on Q2 operating expenses.
But we're more materially reduced the operating expenses in Q3 and Q4.
Our sales and marketing costs were $4 6 million or 30% of revenue down year over year from $6 3 million or 46% of revenue.
The focus remains on sales efficiency in both new and expansion sales.
Research and development was 4 million or 27% of revenue.
In the quarter, we continued to invest in the Q4 platform as the critical component of our strategy to connect all sides of the capital markets.
We expect to attain normalized level of R&D as a percentage of revenue in the mid Twenty's as a result of revenue growth.
G&A for the quarter was $5 5 million or 36% of revenue down from over 38% a year ago.
I would like to highlight that generated savings in this area were offset by the impact of 600000 of non run rate expenses stemming from bad debt expense as a result of bankruptcies in uncontrollable churn.
Period audit fees and expenses associated with annual industry conferences.
We will not repeat in Q3.
We are making progress with G&A reductions and expect it to decrease gradually through 2023 to attain a targeted mid twenty's level.
An outcome of our trend of revenue and profit growth coupled with decreasing opex is an upwards trajectory towards positive EBITDA.
Our adjusted EBITDA was negative $3 8 million for the quarter compared to negative $8 7 million in Q2, 2022, a significant improvement of 56%.
Earnings per share was negative <unk> 15.
When compared to negative <unk> 29.
In the second quarter of 2022.
And on an adjusted EBITDA basis earnings per share was negative nine when.
When compared to negative 22 cents in Q2 of 2022.
<unk> and ARPA are critical components to revenue growth.
Our strategies intended to grow new subscription revenue, while expanding wallet share with our existing client base.
<unk> was up four 5% year over year to $55 8 million. Despite the impact of continued macroeconomic pressure driving uncontrollable churn.
The growth has come from new logos acquiring multiple offerings on the Q4 Q4 platform as well as existing clients expanding their platform solutions.
Power of the platform is exponential when additional products are added to our efforts to ramp this revenue source are gaining momentum.
Annual recurring revenue per account or ARPA was up 12% year over year to 29000.
Driven primarily by 104 existing clients purchasing additional subscriptions.
We are excited to be expanding our relationships with so many of our clients.
We are focused on accelerating this upward trend in the second half of 2023 with the launch of new platform applications, which will drive increased adoption.
And we are seeing increased adoption this quarter, our clients with more than two products increased to 68, 2% of our a R. R.
More clients, who are maximizing the benefits of a unified platform and data and staying with us longer.
Expansion sales, our primary focus of our sales and client services teams, ensuring our clients understand how our offerings to meet their IR needs and that they understand the unique value proposition of the Q4 platform to tie all of the functionality together.
Client retention is critical to maintaining and growing a R. R.
Controllable logo retention remains strong at 93, 5% at the end of Q2 2023.
However, the ongoing pressure from uncontrollable churn continued in Q2 due to withdrawn ipos M&A activity bankruptcies and to a lesser degree de listings.
The number of clients exiting the public market has outpaced new clients added to the Q4 base.
The extent of these exits is tied directly to the macroeconomic environment.
For the six months ending on June 30th.
There were 20 581 clients on our platform, we're using more of our products and increasing spending on both subscriptions and value added services.
It is notable that since the beginning of 2023, we've seen a 139 market exits and we've captured 149 new logos.
Steady controllable churn gives us confidence that the restoration of the market will lead us to historical levels of client growth.
On the balance sheet as of June 32023, you had $44 2 million in available liquidity.
Which included $21 7 million in cash and $22 5 million of availability and an undrawn credit facility and no debt on the balance sheet.
Our core working capital metrics remained solid ending with working capital balance of $17 9 million as of June 30th.
We remain committed to operating with a strong balance sheet and to be good stewards of capital.
And with that I will turn it over to Daryl for his closing remarks on our focus for the remainder of 2023.
Great Thanks, Donna and.
Conclusion, I'd like to emphasize the remarkable strides we have made in recent quarters with the Q4 platform and our ability to enhance our relationships foster ARPA growth and cultivate unwavering client loyalty. These.
These efforts have laid a solid foundation for expansion or expansion sales strategy instilling confidence in providing clear visibility for future quarters, particularly for our valued investors.
Moreover, the structural changes implemented over the past year have proven instrumental in achieving additional operating leverage setting the stage for continued and sustainable gross margin expansion throughout the remainder of this year.
Our focus remains on driving revenue growth through new products like our earnings lifecycle and events management application, while maximizing operating leverage.
By harnessing our vast amounts of proprietary data coupled with the power of generative AI, we are transforming the investor relations workflow and solidifying our position as the leading capital markets access platform.
This is what differentiates the <unk> platform and delivers unmatched value to our clients.
With a resilient business model and seasoned leadership team, we are well positioned to deliver on our financial goals.
And with that we want to thank all our shareholders clients and employees for their continued support and loyalty. Thank you everyone for listening in on today's call and let's go to the questions Ed.
Thank you everyone, we will kick off our Q&A session with questions from our live research analysts audience.
And based on time available we will take a few submitted webcast questions with that the first question comes in from Christians grow from eight capital Kristen.
Hi, good morning, everyone and thanks for taking my questions. This morning.
We're I'll start today is on the gross margin expansion story.
And it was good to see the year end targets reiterated there and on the EBITDA profile, you referenced automation and streamlining workflows as a key driver of the margin expansion through the year and just hoping you could unpack the where.
Where do you see some of the costs coming out the margin improving what's the impact he has on your customers or business to drive that margin improvement.
Oh, good morning, Christian and welcome to Q4.
It's a it's nice to see you on the margin expansion and when we think about the automation.
Technology automation Gerald spoke of some of it.
On the platform that is currently available which is the web management App and the continued adoption of that and workflow automation there around our earnings.
Earnings the earnings cycle Managements events management that will also be on the platform. Each of these takes a critical workflow and IR workflow, especially at those critical times in our in the earnings cycle and automate that process and removes the back and forth remains the doubt.
And leaves the published the preview publish that is critical to eye arrows in our in the hands of the arrows in the IR teams.
With that we see.
Two two aspects one we will not have to add as revenue is growing we will not have to add the resources.
The resources.
That we would have previously had on a proportional basis. So that is one area of the margin expansion. We also see with the unified data that data costs will go down in that same in that same category through more adoption on the platform. We ended up with a more powerful and proprietary data and that too.
<unk> is helpful on the Cogs on the Cogs side and then additionally.
What we see as new products, adding adding new products onto the platform as well and not having to add incremental resources into those engagement and analytics would be a perfect example of that where it's a pure SaaS offering.
That has high SaaS margins are north of 90% and so we see as those become part of the product mix going forward, a larger part of the product mix and similar applications coming out in the next 12 months that we'll see the margin expand even further.
And I'll sneak in for one more question before passing the line.
The ARPA metrics are all well well defined and laid out but in terms of the size of the customers.
New logos and some that are churning is it fair to say that your average customer is larger through some of this motion youre going upmarket or.
A lot of medium sized customers are leaving a lot of medium sized customers are joining are there any trends on the size of the customer that you're signing.
Maybe I'll I'll take that one.
I think in general when we see the kind of market conditions that exist today, what you do see is that.
From an uncontrollable perspective smaller companies getting taken out more frequently. So we are seeing the smaller companies there be impacted kind of mode to a larger degree in terms of uncontrollable churn, so whether thats through M&A or or going private.
To a lesser degree delisting that those would certainly be impacting smaller companies versus the and we was small we take kind of the smaller end of small cap.
Whereas not as affected as much when you get to the kind of larger small cap into mid and enlarge.
That all makes sense happy to be on board with the start and thank you for taking my questions. This morning. Thanks, guys. Thanks. Thank you Christian.
The next question will come from Stephanie price.
D C.
Thank you and good morning.
Donna maybe this one's for you I was hoping you could talk a little bit about your comfort in meeting the target of being adjusted EBITDA positive by the end of the year. It does seem to imply a pretty significant ramp in the back half of the year and just curious how the puts and takes there.
Yeah.
Thanks, Stephanie and good morning.
How do I, how I approach. This if I look at the Q2 results, we improved our negative EBITDA by 700000 in the quarter and we had another an additional 600000 of expenses that are nonrecurring and will not repeat in <unk> in the third quarter. So I view that as a 1.3.
Advancements in the EBITDA and when you couple that with the fact that we did a $6 million adjustment in adjustment in cost in may of which we only experienced about five <unk>.
Five weeks of that savings so when a couple of the savings taken in May.
The quarter over quarter improvement and the removal of the nonrecurring I feel quite confident still that we are that we are on that path to positive adjusted EBITDA by year end.
Okay.
That's great color and then Darryl AI offering will be you can talk a little bit of a expected pricing model in the competitive landscape that you see for the offering.
I would say, we're pretty early on determining the pricing model associated to it we do see.
Benefits across many of the products of the AI being a like an efficiency layer, helping customers kind of do more and get more value more quickly and in that light, we wouldn't see it as being kind of a separate offering but more of an enhancement to existing products, having said that we do see applications of AI as standalone new products that could be brought to me.
So we're still in the mode of working with clients working with a tight group, that's giving us very good feedback and we're still figuring out what the impact of that will be from a pricing perspective.
Throughout the balance of the year.
The and what was the second part of your question Stephanie I'm sorry.
And the competitive landscape that you see for the product.
I think what we're seeing across any business out there.
Is is looking for ways to integrate AI.
What separates those that are able to really extract differentiated value. It relies on the data and that's something that we feel very well positioned that the investments that we've made from an infrastructure perspective and from our ability to consolidate all of the data that is being generated across our entire platform that asset clearly differentiate.
US and separates us from many of our competitors in terms of being able to leverage AI and truly provide.
Differentiated end and highly valuable kind of products and services to our clients based on AI.
Thank you very much.
Thanks, Tim.
Our next question comes from Richard Tse from National Bank Financial Richard.
Yes.
Yes. Thank you I also had a competitive question like I said I appreciate the challenging backdrop.
But wondering if you maybe give us a sense of your win rates in the market today and I'm not sure reserved track yourselves against the market and the market share.
Just wanted to I can understand how you think you're progressing against the broader market.
Sure Yeah, Thanks, Richard maybe I'll take that one as well.
I think the first off is that what we're seeing in the market is affecting all companies that serve the capital market. So any businesses that are connected to capital markets activity, whether that that be firms that exists within providing investor relation services or corporate access or deal management or investment banking.
All are being impacted in the same way by the kind of muted levels of activity.
Having said that we are certainly seeing that tide turn I think in in this quarter. We did a similar amount of Ipos that we did back in Q2, sorry back in Q1.
And we.
We believe and when we see what's happening with Ipos in general cargo was a great a great kind of Canary in a coal mine in terms of like really opening the door again, and we're seeing that backlog of ipos kind of really starting to ramp up again, there was a great article in the Wall Street Journal. This morning kind of talking about that as well. So we think that that overall is a macro is is.
Beginning to be better. So we think that that will benefit us as well as all the participants in the capital markets.
In terms of competitors I think that we really track our win rates and we kind of target kind of the a 30% to 40% kind of not quite at 40, but kind of mid 30 percents closed one rates like a win rate and that's something that we really watch very carefully certainly pricing has a big impact on that and we want to make sure that.
We are delivering the most value to clients as possible, while also maintaining our pricing levels as much as soon as possible. So we really looked at kind of maintained that win rate that's something that we've sustained throughout this entire downturn of the market and what we've seen is that our positioning and what really differentiates us from our competitors is our ability.
<unk> to unify all of these workflows, so things such as like an earnings lifecycle that goes across many different traditional products. So that touches web events CRM analytics all of those together to help the IRR is really manage the entire earnings process and that's something which is very unique that we are able to offer so that the value of our platform and how we are.
Differentiated in terms of value provide we think is going to serve us very well during this market as it has been as you can see from the results.
But also significantly as that IPO market starts to heat up again in the back half of this year hopefully.
Okay. Thanks, and then my other question has to do with.
The revenue base and you've obviously made some efficiency gains on the cost side and it sounds like these enhancements have the potential to serve healthcare increasing pricing down the road. So under the current cost structure, how much revenue would you be able to support.
Yeah.
Good morning, Richard Nice to see you again and.
I'm trying to think of the best way to to phrase this.
What I believe is that this cost structure takes us all the way through 'twenty four on the Cogs side.
Particular, because the automation is the growth will consume capacity labor capacity, but in.
And the automation will well offset existing existing efforts and existing labor costs. So I think it's a blended on the Cogs side throughout 2024, and then when I think about it on the Opex side, we are definitely on the sales efficiency side as I noted in the in the <unk>.
<unk>, there's still I think theres still a little bit of room on the sales efficiency, but I would expect that that would ratchet up with them with the markets opening up and entering any new markets that we may choose to.
In 'twenty four 'twenty five.
G&A side is definitely.
Needs to come down and then could support the company up into up into 24 and 25. It is not a it is a step wise.
Yes, stepwise cost are not linear and so I would expect the G&A to support the 2024.
<unk> as well and then R&D I've noted that we you know.
This is critical to us the differentiated story that.
The platform.
And our proprietary data around that platform that I would expect it to maintain at about 25% of.
The revenue so that will move in linear fashion with the with the revenue.
Okay, Alright thats helpful. Thank you.
Thanks Richard.
Our next question is from Kevin Mcveigh from Credit Suisse Kevin.
Okay.
Great. Thanks, so much in.
Congratulations on the results I guess, Daryl or Donna I think if my maths right. This is the first revenue beat you've had in six quarters just terrific.
Any thoughts on kind of the puts and takes on that and then.
Can you remind us of any seasonality as we think about Q4.
No pun intended.
So.
Thanks, very much for those for.
For the question, Kevin and for the comment I think getting back to double digit revenue growth is something that we are really pleased with and I think that that's coming from the it really comes with our focus on on serving our clients and providing this platform that really does deliver value to them.
What's helping to drive the expansion selling as I mentioned during my comments, we continue to see about two thirds of our new bookings coming from selling into the client base or expansion sales.
And so that's something which.
Is Ah is an element that we have a greater degree of control then kind of overall.
The new market demand and so that's something that we feel good about our ability to continue driving revenue growth. While we're in this kind of market condition and.
And it really comes down to the execution I think the changes that we made back in Q3 of 'twenty. Two we started to see though is really kind of pay dividends in the fourth quarter and in Q1, and we see that continue in the second quarter. So I think we just have really focusing on what it is we can control and I think youre starting to see that in the results now.
Great and then just a quick follow up the incremental 600000 was that expected or unexpected so.
So said another way would the EBITDA been that much stronger or that was in the guidance already and then.
If I look at the components of that.
Is that all truly one time or is it.
Audit fees things like that churn.
Just how should we think about that because obviously really nice EBIT leverage despite that but just can you help us understand that a little bit more.
Yes, absolutely Kevin on the on the audit fees those were somewhat unique yeah I came in to see halfway through the year. The technology advancements on the platform the web management App and some of the advancements within.
The sites themselves and the building of the sites.
Required.
SaaS revenue policy overhaul that I felt was with fairly critical coming into 2023.
<unk> was most appropriate to match the technology advancements and so really needed.
WC to work with me on the bifurcation of what is the SaaS and subscription and what is the pro serve that follows on and the value added services that the clients engage on websites.
That was incremental it was somewhat expected but in.
In the in the guidance and but I pursued it to its fullest through the course of Q1 and Q2 and so that is nonrecurring in nature and actually simplifies our Rev revenue rounds and relating to website going forward.
The IR.
Conferences the seasonal it is the season for conferences nearing theory.
All of the European on IR events, and a host of other activities going on where our IRS.
<unk> tend to gathering and really what's first and foremost on their minds surfaces.
And really helps us inform us on what they need from us going forward and so that's recurring but only on a Q2 basis and it was anticipated.
As well it was a little larger than anticipated because we had several of our own.
Q4 <unk>.
Our IR advisors I end up with awards themselves in them in the U S and so we we definitely celebrated their success.
And in these conferences and then lastly was the bad debt and it was unusual we had been.
We had been carrying some of that in our aged IR in the hopes that we could work through proper channels and collect and collect on those bankruptcy through the trustees. However in Q2 I felt that it was prudent to actually take the bad debt expense and and remove that will continue.
To try to collect but as you know in bankruptcy that becomes.
That's a lot of diminishing returns at this point is with the passage of time, so nonrecurring at that level and it is over and above what we would normally accrue in a in a bad debt allowance. So it's definitely outside the norm.
Very helpful. Congrats again.
Thanks, Thanks, Kevin.
Next question is from Maxim <unk> from RBC Dominion Securities Maxim.
Yeah, Hi, good morning, I, just wanted to circle back on the competitive displacements.
You mentioned that some of the growth in this quarter was from those displacements can you maybe provide a bit more color on that.
Was there any action taken by a competitor to drive those displacements or was it a higher level of customer churn from those competitors compared to previous quarters or I guess, what what's driving that.
Sure. Thanks Maxim.
So I think in one of the in the prepared remarks done it took us through the the client changes and I believe the number or the first six months of the 149.
Or so so roughly about half of that came through in the in the second quarter in terms of those competitive displacements. So we're seeing that kind of 70 70 some odd.
Our new logos won during the quarter.
And what we have certainly seen it I mean it comes back to the same thing what the folks that we're competing against.
Our largely point solutions. So they are kind of like would provide one part of the product stack that we're competing against and what we see is that competitors in this environment, we'll focus on on being aggressive on from the pricing side of things or looking for other ways in which to either retain or displace and what we've seen.
Increasingly been working well for US is the is the value of the platform that as we bring all of those functions together, we're able to help our clients save time and in many cases as well. We're also able to help them save money by consolidating their spend onto one platform. So that has been what we've been focused on as we've.
Really built out this platform over the last couple of years, but that combined with our our approach and our our strategy in terms of how we're selling is helping us deliver these numbers and we do think that as as things kind of continue to improve hopefully over the over the second half of the year and into 'twenty for that those that strategy will.
Continue to to be effective for us.
Yeah.
The thing I would add on that Max is that the.
104 clients, who bought additional subscriptions with us and especially those that were in the deck in the events subscription.
Subscription base or in our add ons in.
Add ons in web or CRM, if I think about those those are those two are competitive displacements.
Yes, very good point, not full new logo to us, but they were using an existing provider. There was an incumbent and they have transferred to us and consolidated their solutions on our platform. So we tend not to speak about those as much but I think there is meaningful on the competitive displacements story very good point.
Got it that's helpful and just maybe on the gross margins you mentioned, obviously, we've been talking about them tracking to the mid <unk> is that an appropriate level.
Going forward on a steady state basis like I appreciate you'll look to drive more expansion from operational improvements, but I look at to get a sense for whether there's other levers you can pull I know you mentioned, maybe some of the new technology offerings that you're planning and maybe you can expand a bit on that and kind of where you see the steady state for gross margin.
Going forward.
So maybe I'll take the first half that but have done if you wanted to add onto it that.
We think the terminal gross margin that we're focused on on.
Taking this business too is in the kind of high <unk> low eighty's and the way that we get there as Don mentioned earlier is through.
We've referred to it as automation, but this is really about delivering products in a way that that helps to automate much of the <unk> workflow.
And and does so in a way that is highly efficient on our side. So that is leveraging our platform our data our proprietary data and the analytics. But then there's also connects to AI that as we I've been working through and we've been able to to take many folks kind of through the work that we're doing we see a lot of opportunities to simply.
I'd more value and do more for our clients and hence deliver more value and more price.
But doing so with more and more of software and AI and our data and so when we see that kind of coming through to year end, we feel very good about ending this year and kind of like the mid seventies.
And that trajectory continuing on into into 'twenty, four and I'll just remind all the listeners as well is that when we came public back in the fall of 'twenty. One we were about 58% gross margin and what we set the expectation then is we are going to end 'twenty two.
And in the mid sixties, which we achieved and now we're saying that we will end this year in the mid seventies, which we're highly confident and so we believe that that trajectory will continue.
Did you want to add anything to that I don't have any okay, alright, great. Thanks.
Our next question is from David Pearce from Raymond James David.
Good morning.
I'm, just going back to bad debts.
My understanding is that you build front for most of your products. So you don't want to.
Parts would be that bad debts are pretty rare in your business can you just add some insight as to how that came about.
Yes, and good morning, David and the bad debt would have been on renewals not on new not on new logos. So we would you are correct. We do the majority of our business is annual in advance and then on the renewal we would be issuing invoices somewhere around 60 days prior.
The renewal periods.
It is that it is in that cycle and with clients, who are experiencing bankruptcy who would.
Then b then.
And be carrying it into the 30 days post 60 days post and as I said at some point, we understand that they are in financial distress and then file for bankruptcy and we go through the proper procedures to subsequently collect however.
That the odds or the dollars defense on the dollars tend to be tend to be low on that front.
We are.
We have created more workflows around identifying the symptoms of this and getting out in front of us.
And it is not.
To your earlier point of we have a low bad debt experience, we definitely do and our bad debt allowance does not capture events like this where you have where you have double digits per quarter or double digits over a half year of bankruptcies and end up needing to take action on.
On all of those but it is on the renewal not on the on the first invoice with a new with our clients.
Thanks, So much Larry just from my understanding.
Okay. Sorry go ahead apologies, sorry, I muted myself their backs and so from my understanding this was maybe a multi year contract.
Build it all upfront and then you know.
There might be an annual payment and then another annual payment in the second year and it was the second year maybe.
That the payment.
Default it is that is that correct.
That would be correct, yes, and we would carry them as long as we can we recognize the sensitivity of of being a public company and.
And and supporting them as they as they work through their process. However.
We as I said, we've had we've amended our workflows to make sure that we identify early work with the clients early on to not leave them and their investors.
Disrupted however that we do.
<unk> experienced a bad debt expense on the same front.
Thank you if I just squeeze one more in quick.
Quick question on head count.
I think when you went public.
Around 480.
Youre sitting at 500 today.
You know broadly speaking you know what all the reductions that have gone on I think you called around 7% back in <unk>, you would expect that to be flat to sort of down.
Can you maybe just bridge you know that.
Oh level of head count versus where we are today.
I think that the one way to to understand it as well is that we look really I kind of like overall.
People cost.
Versus head count and that's because of the our strategy around building our teams in Latin America.
Really kind of it's important to understand because if you just look at kind of like a pure head count number that.
That number may stay flat, but in certain parts of the business that the costs associated to it has come down so I think kind of going forward at least in the short term you would expect kind of the numbers to remain relatively similar.
However, the cost basis is what we focus on in terms of from an Opex perspective and gross margin.
And David also on with the IPO and the investment thesis at time of IPO. It was to ramp our sales and marketing and ramp product and R&D at an aggressive pace.
On what was then the thesis for the three years are at time of IPO. So we did add a number of bodies over.
November of 2021 through to July of 2022, and so the number went up considerably before it started to move back down in Atlanta that flat.
So what youre not seeing in the man in the middle is that that steep curve of adding sales marketing in and in all markets.
And then we've retained the majority of the product of the R&D folks that have been added.
Perfect. Thank you very much.
Thanks, David.
That concludes our question portion of today's call Darrell I'll, let you conclude.
Thanks, Ed and thank you to all of the attendees on the call today. Thanks for spending the morning with us and thank you to our covering analysts for all the very thoughtful questions.
If we are unable to answer a question. If you. If you did submitted over the webcast. Please give us a little bit of time, we will get back to you on that or if you have any other questions. Please contact our Investor Relations group you can you can get the information on the IR website or submit a request for meeting with management through the IR website, and we'd be happy to follow up with you directly. So thanks very much for your time and.
Donna and have a wonderful day out there everyone. Thank you.
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