Whispir Ltd

ASX:WSP

Earnings Call Transcript 2021-Q1

[Operator]

Thank you for standing by, and welcome to the Whispir Limited Q1 FY '21 Activities Update. [Operator Instructions] I would now like to hand the conference over to Mr. Jeromy Wells, CEO. Please go ahead.

[Jeromy Wells, Co]

Good morning, everyone. Thanks for joining us to discuss Whispir's progress over Q1 FY '21. Our CFO, Justin Owen, is here with us. We've had a strong start to the new financial year as our customers increased their platform use to solve new operational challenges, including remote working, process automation and improved stakeholder engagement. We're also benefiting from ongoing demand for easy-to-use communication software with strong quarterly growth in new customers. This morning, I'll take you through our business update before providing some context around key macro growth trends. Justin will provide an overview of our Q1 financial performance, and I'll finish with our strong growth outlook and expectations for FY '21, and we'll welcome questions at the end. Turning to Slide 2. Annualized recurring revenue, ARR, is a key metric for our SaaS business, providing future revenue surety. In Q1, ARR increased 26.7% over the same period last year to $43.7 million. This was a quarterly increase of 3.6% over June 2020 figures. As I mentioned earlier, growth was driven by a combination of higher transaction volumes by existing customers as well as new customer acquisition. As you can see on Slide 3, our customers are generally long term and increase their platform usage over time. Many of our customers implement Whispir to solve a single-use case, such as operational coordination or onboarding of new employees. This incline in the graph continues to get steeper as we move to the right. This means that over time, more of our customers use more of our multi-purpose platform to solve additional communications challenges. Therefore, our monthly revenue per customer significantly increasing once our platform is used for 3 or more use cases. This is what we refer to as our land-and-expand strategy. We expect customer revenue retention will be circa 120% by the end of FY '21. The next slide shows our new customer growth. While Q1 is traditionally the quietest period for new customer wins, we onboarded 35 net new customers over the quarter, our highest ever for the period. These new customers bring the total customer number to 665. Macro communications trends, such as digital transformation and operational challenges on the new normal, continue to drive demand for our easy-to-use and fast-to-deploy communication software. I'll provide more detail on these trends shortly. Industry diversity provides a key point of difference for us and reduces our reliance on a single customer or industry sector. It also provides us with unique cross-selling and growth opportunities. Slide 5 shows the breakdown of our ARR by industry sector and how it compares to the past 2 years. As you can see, government remains our largest contributor to revenue along with ICT and banking. We've seen strong growth in the mid-market segment as we continue to focus on customer diversification beyond the enterprise sector. Unsurprisingly, ARR has declined within the logistics and retail sectors. However, we anticipate both will rebound as COVID-19 restriction ease. I'll now hand over to Justin, who will take you through the financial results.

[Justin Owen, Chief Financial Officer]

Thanks, Jeromy. Good morning, everyone. Slide 6 shows our key financial metrics over the quarter, where we had the strongest Q1 on record with quarterly customer cash receipts of $10.5 million. This was a 35% increase over the prior corresponding period and our second highest quarterly revenues since we've listed, behind Q4 FY '20, which is traditionally our strongest quarter each year. At the same time, our cash balance of $12 million was almost $900,000 ahead of forecast, and we remain well funded to execute our growth strategy. We capitalized $1.1 million in R&D expenditure over the quarter, spent in excess of $1 million and appointed new members to the product team to progress our 5-year product road map. This is in line with our total R&D cash investment expectation for FY '21. We are on track to realize our total R&D cash investment in excess of $9.2 million. While we continue to maintain strong cost management, cash outflow during the quarter was impacted by one-off short-term incentive payments and timing of working capital movements. Slide 7 shows the downward trend in revenue churn, which is now at a historic low of below 3%. Customer churn is also relatively stable despite strong new customer growth over the past 3 quarters. This low level of churn reflects the long-term nature of our customers, where we are often embedded in their operational processes and use to solve multiple communication challenges. I'm happy to take questions at the end of the presentation, but for now, I'll hand you back to Jeromy.

[Jeromy Wells, Co]

Thanks, Justin. Slide 8 highlights how COVID-19 has accelerated the need for digital communications to support remote work and enable new forms of engagement. COVID-19 has provided businesses with the urgency to go digital. Over the past few months, we've seen digital transformation strategy of our customers compressed by an average of 6 years into a few weeks to adopt to the new normal. This focus on digital transformation has seen many companies look for solutions that are capable of embedding intelligence into business operations, automating more effective organizational processes and transforming their engagement with staff, customers and their communities. As Whispir facilitates many of these macro communications trends, they have provided a secure tailwind, which offers significant short- and long-term growth opportunities. Slide 9 shows the size of the global digital transformation market, which is growing at a CAGR of 22.5% and is expected to hit $1.4 trillion by 2027. Digital transformation is an enduring trend and already accounts for the majority of global information and technology investment. It will continue to drive increased platform use by existing customers and support new customer growth for years to come. Turning to Slide 10. To address this global growth opportunity, we're continuing to improve the capability of our communications platform. This month, Whispir became the first Australian business and only one of 18 globally to achieve AWS' newly launched Digital Workplace Competency status. This AWS certification recognizes Whispir's proven expertise in providing customers with end-to-end digital transformation tools that support remote workers and optimize business continuity plans. Slide 11 outlines main drivers for us to increase our footprint within our 3 key markets, ANZ, Asia and North America. We utilize established channel partners, including Telstra, StarHub, AWS and Nexmo, to cost-effectively acquire new enterprise customers and enter new geographic markets. These channel partners collectively account for about 3/4 of our revenue and are key to our go-to-market strategy in all 3 regions. We're also diversifying our channel partners to increase our product offerings and drive platform adoption. And lastly, we're continuing to add new functionality and features to increase platform usage with our existing customer base. Also key to future growth is our digital direct strategy on Slide 12. Digital direct offers significant growth opportunities and expands our target customers beyond the enterprise sector. It provides cost-effective access to the SME market, enabling small and medium businesses to self-discover and implement our automated communications capabilities to improve productivity and customer engagement at an affordable price point. In Q1, we made significant progress with our digital direct strategy, and we're on track to launch the SME market within the next year. Moving to Slide 13, our investments in data-driven intelligence capabilities. Our 5-year product road map will see us build real, defensible intellectual property in Whispir, grounded in 3 key concepts: prediction, detection and automation. Prediction is where we build features that can see around corners to save our customers wasted effort. We can use prediction to stop our customers sending messages to people about train being late if the recipient isn't catching a train that day. Detection is about seeing something as it happens and helping customers avoid making mistakes, such as detecting if their message is poorly written or has a spelling mistake before they send it. And finally, automation. Increased automation will enable our customers to extract value faster. This includes automating the setup of accounts, the onboarding process and message sending, leveraging our workflows. New products are being introduced to include conversational messaging, smart scheduling and an intelligent message design capability as well as significantly improved insights into individual recipient preferences. That will take us to the new platform enhancement on Slide 14. Over the quarter, we continue to improve and refine our platform capability in line with our 5-year product road map and our transition to becoming a communications intelligence company. We completed major framework upgrades to deliver new features for developers, added new interactive web form components to workflows and messaging and included a secondary navigation menu for the management of contacts and messages. Improvements will also make the reporting functionality with enhanced engagement metrics and activity reports across more channels. We continue to build the foundation of our AI and data intelligence capabilities, adding new recipient variables to enable dynamic capture of recipient information and preferences. New functionality and features being added over the coming years include conversational messaging, smart scheduling and intelligent message design capabilities. Slide 15 shows our growth expectations for FY '21. We continue to build momentum in the business with strong new customer growth over the past 3 quarters. While many of these customers are implementing Whispir for a single-use case, we expect that will have a material impact on revenues later in FY '21 and beyond. Revenue and ARR are both expected to increase by 21% to 30%, while EBITDA will improve by 14% to 35% over FY '20 figures. We're also increasing our R&D investment, about 8% to 15% in excess of $9 million. Thank you for joining us on the Whispir journey. We'll now take questions, and I'll hand you back to our operator to put them in the queue. Operator?

[Operator]

[Operator Instructions] Your first question comes from Owen Humphries from Canaccord.

[Owen Humphries, Senior Industrials Analyst]

Well done on a strong quarter. It looks like record customer adds. Just maybe just touch through -- is there a way to correlate the ARR growth to customer rates? Or is there an element of ramp-up within that customers? Because the ARPU looks a little bit lower than your historic average. Just maybe just talk through how much of the new customer adds are booked in that ARR.

[Jeromy Wells, Co]

Yes. For sure. So we've had really consistent sales execution and delivery fortunately with Q1, and that's an enduring trend through Q2 and beyond for FY '21. The new customers that we've onboarded in this period have had almost no impact to our ARR because most customers, they start -- we encourage them to start small to get a rapid return on investment and to build out capabilities over time. And so these new customers will make a contribution to revenue and to accelerating the growth of the ARR over Q2, Q3 and Q4. So it gives us a real spring in our step. Normally, Q1 sales for us -- because of our annual sales cycle and our engagement with channel partners, Q1 is normally a quiet month for sales. So it's very encouraging to see such strong demand in the market in Q1. And we really look forward to seeing that make a contribution over the coming quarters.

[Owen Humphries, Senior Industrials Analyst]

Good one. Okay. Good to hear. And then maybe can we -- if we look across -- in August, your full year results, you're talking about a pretty strong pipeline, talking about average deal sizes being large, looking forward with confidence in terms of customer numbers. Can you maybe just talk about how that pipeline is moving? Is it strengthening? Is it just converting on that pipeline? If the deal sizes are still getting larger.

[Jeromy Wells, Co]

Yes. We're trying to be disciplined and not talk about sales on a quarter-by-quarter basis, but I think we can provide some color in the sense we go -- if we look at what the sales pipeline was at this time last year to where it is now, the sales pipeline is more than 2x larger than it was this time last year. We had substantial coverage. We have nearly 5x coverage in terms of qualified pipeline opportunities versus what we need to retire in terms of signings. So that gives us a high degree of confidence around signings and the performance of the sales function in the business for the next quarter. It's a really -- it's unprecedented and actually they had such really strong metrics, but it gives us a very healthy platform. And we take that with the improved cash performance. We're nearly $1 million ahead of where we thought we'd be at this time. The business [ has average shortfall ].

[Owen Humphries, Senior Industrials Analyst]

Maybe just one from me, just on the different gears of the U.S. So of the 35 net that you added, maybe the percentage of that, that came from the U.S. And I understand there's been some change in management over there just in the early wins since that transition.

[Jeromy Wells, Co]

Yes. So the story about the U.S. is really about being doing the plumbing and the pre-work with that channel partner. So we've got quite chunky and substantial engagement with our channel partners around aligned go-to-market over there. So we're building pipeline in the U.S. and with a real sense of vigor. We are going to provide a North American market update and provide some more specific color on the U.S. go-to-market strategy in early November. I think that will be the time where we'll talk about the maturity of the go-to-market strategy there.

[Operator]

Your next question comes from Jules Cooper from Shaw and Partners.

[Jules Cooper, Senior Analyst]

Congratulations on a good quarter. Jeromy, one thing I just wanted to pick up on there was the digital direct strategy. That looks like it is really starting to kick into gear. Could you maybe just elaborate on how you're thinking about pricing in this area of the market and just what the upfront, if anything, charge would be for SMEs? Or is it sort of a very much use it and pay for what you use kind of approach to that market?

[Jeromy Wells, Co]

Yes. That's a good point that you raised. And for sure, there's an evolution of the pricing. And when you look at just -- I mean for SaaS model, you can see -- well, you want to minimize the amount of friction, so almost a premium model to enable people to get particularly started and to fall in love with the product and then to support them on the journey through greater utilization and adoption. So there will be an evolution in the pricing to support a highly targeted go-to-market with respect to some key identified personas and -- to be effective in the sort of -- it's a nuancing and it's a whole new market opportunity for us, but it's not -- yes, that's -- we're not -- I wouldn't want to get ahead of ourselves, right? Our intention is to really invest in this over the coming quarters but -- and to have an end market before the end of the current financial year. But it's about doing all the work behind the scenes to be as successful as possible. The new pricing and the model is not currently baked into our existing forecast. There's no -- so in that sense, it provides upside that we haven't yet quantified.

[Jules Cooper, Senior Analyst]

And so the success to that really is just mid-market customers coming to you essentially through the marketplace.

[Jeromy Wells, Co]

Yes.

[Jules Cooper, Senior Analyst]

Is that sort of how we think of it? Yes. Okay. All right. Makes sense.

[Jeromy Wells, Co]

Yes. No. Look, it's really encouraging. There's -- everyone's really motivated to do it. But there's a lot of analytical work that goes in to ensure that the experience, that the onboarding is as frictionless as possible. And we just want to -- we want to be -- we want to do that work, yes.

[Operator]

[Operator Instructions] Your next question is a follow-up from Jules Cooper.

[Jules Cooper, Senior Analyst]

I'll ask another one if no one's keen to. So look, the -- Jeromy, you made a comment there about the pipeline coverage of 5x, and that was unprecedented in the company's history. Could you maybe just give us a sense for typically where you've seen pipeline coverage in terms of what you need to retire in a given year? Is it 5x? Is it compared to 3, 4?

[Jeromy Wells, Co]

Well, look, I think as a rule, you don't really feel comfortable unless you've got 3x pipeline coverage because there's always things that drop out. There's delays and what have you. So I think in terms of our own level of comfort, if anything over 3% is good, 5x is terrific. And look, I think it's a real credit to the maturing of our sales function within the organization and just the disciplined cadence and the way that the various sales teams are working. Sales productivity is fantastic and, yes, it's a really healthy sign.

[Jules Cooper, Senior Analyst]

Sure. And just maybe the last one from me. You've sort of commented there that you anticipate a rebound when states open up over the course of the year. I mean how -- is that sort of a meaningful rebound enough to sort of potentially impact the trajectory of the year? Or you've pretty much taken a very cautious approach to that in your guidance and modeling?

[Jeromy Wells, Co]

Yes. We haven't assumed a rebound in terms of the numbers and the metrics in the guidance we've put out, but we can see it. We can see that there's pent-up demand in terms of use cases, and what organizations are looking to do is businesses where they're able to return to normal. And so in that sense, there's a lot of -- you can just tell by in terms of the form activity. There's a lot of work going on in terms of creating new content, new ways for engaging with staff and employees and customers that are yet to be turned on by customers.

[Operator]

Your next question comes from [ Stella Wang ], a private investor.

[Unknown Attendee]

Just one, please. Looking at the ARR step-up this quarter, it seems to be a little bit lower than what you did in the September quarter last year. I'm just trying to reconcile this with the record customer acquisition you did in Q4. So looking at the 72 new customers you got last quarter, you would almost expect some more new ARR added this quarter.

[Jeromy Wells, Co]

Thanks, [ Stella ]. It's nice to hear from you. Look, I think the -- we had a good, strong finish in terms of the end of Q1 last year in terms of increasing ARR. The majority of the focus, as you know, at the end of Q4 was new customers that came on board and, again, new customers this quarter. Normally, when we think about our modeling, we anticipate that it takes 9 months for customers to ramp up to what will kind of get that first phase of steady-state utilization of the platform because the things for organizations to do is -- there's -- data needs to be organized. And often, because many of our new use cases are net new, it takes a while for people to evolve their utilization of the platform, how they think about it, how they learn about how it works and how they scale. So look, in terms of what our forecasts were, we're exactly on track for where we thought we would be in terms of ARR growth. And we're -- we think with the new customer adds and what have you, the business is set up for a very strong, consistent year delivering against our expectations. So it's completely aligned with where we think. It's -- we think it's -- the business is really well placed.

[Operator]

[Operator Instructions] Your next question comes from George Talboys from Wilsons.

[George Talboys]

Jeromy and Justin, good to hear from you both. Guys, my question is just around this platform interaction volume that you referred to being up 41.3% over pcp, which looks like a great number. I'd just be keen to understand a little bit more about sort of what makes up that calculation and whether you would expect that number to continue to grow at that sort of rate on a pcp sort of basis or whether it's a particularly high growth in that platform interaction over the last quarter.

[Jeromy Wells, Co]

That's a really good question, George. It's our ambition to accelerate that rate of growth in terms of the interactions on the back of increasing utilization from our customers. So we would anticipate that this -- that, that kind of interactions activity will accelerate in terms of its growth. So -- but it's very encouraging to see this -- because it's sort of an indicator of how engaged our customers are with the platform in many respects. So -- but it's made up -- there are many contributing factors to the interactions.

[George Talboys]

Yes, sure. Do you guys look at your -- I guess your usage on a module-by-module basis across your customer base?

[Jeromy Wells, Co]

Module by module, channel by channel, region by region, yes. There's a lot of, yes, really super granular analysis of what's going on, users' context and trends within customers. The challenge we have -- it's always been a bit tricky, is we have such a diverse body of use cases and spread across a large number of different industries and regions. And there's -- we don't have enough statistical data in terms of groups of customer cohorts. We can't really provide reliable analysis about sort of growth trends and trajectories of utilization because they're so varied. I mean it's a great strength of the Whispir platform that we can support all these different communication challenges that organizations have. It is quite hard to be specific about profiles and some of these trends.

[George Talboys]

Yes, sure. I guess that question was sort of aimed at the sort of the development of the platform and the additional use cases and capabilities that you are developing over time versus sort of a core usage and a core growth of that -- and growth of that core usage as well over time. But it sounds like it's both really contributing to that overall interaction volume increase.

[Jeromy Wells, Co]

Yes, for sure. Yes. It's -- well, there's -- I think at that corner, you can see that a substantial amount of our growth comes from increased utilization. And that's borne out of a strong net -- the customer revenue retention numbers, which are really the engine of business. If you think about what's the fastest way to accelerate growth, you've got an installed base of awesome blue-chip customers that can all spend more because we have -- for those a relatively small share of their wallet. And so we've made substantial investment and we've quadrupled the size of our customer success function this quarter as we seek to provide more touch points and more support for our existing installed base to continue that increased utilization, which is borne out by those interactions. And that's when it gets really sticky. As soon as these customers get over 3 different use cases, they're nearly always renewing their contracts. And we build long-term, enduring relationships with these customers where usage over time increase as well.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Wells for closing remarks.

[Jeromy Wells, Co]

Well, thank you, everyone, for taking the time out of a really busy reporting period and week to hear the Whispir story. And look, we're thrilled to consistently deliver and meet our guidance and our expectations. We have made substantial investments in terms of improving quality and building capability in terms of our team. And it's a great pleasure to be able to report back a consistent delivery execution and to be so proud of the platform we have to support enduring growth over the years to come. Thank you very much.

[Operator]

Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.