Whispir Ltd

ASX:WSP

Earnings Call Transcript 2021-Q3

[Operator]

Thank you for standing by, and welcome to the Whispir Limited WSP Q3 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. Thank you for joining us to discuss Whispir's progress over Q3 FY '21. Our CFO, Justin Owen, is here with me. This morning, I'll take you through a business update before providing some insights into our recent capital raise and progress in North America. I'll finish with our strong growth outlook, including macro trends and how we're progressing with our FY '21 targets, and we welcome questions at the end. Turning to Slide 2, annualized recurring revenue. Our SaaS business is built on strong underlying recurring revenue strengths, providing future revenue surety. To more accurately reflect Whispir's underlying business performance, we've recently updated our methodology for calculating annualized recurring revenue to remove the volatility caused by variances in the number of days in a monthly cycle to improve accuracy. Under this new methodology, ARR has increased more than 20% over the same period last year to $50.3 million. This is up 5.2% on the December quarter. The change in methodology does not impact our FY '21 ARR guidance. As you can see on the next slide, our customers are generally long term and increase their platform use over time. While new customers typically implement our easy-to-use platform for a single communications purpose such as 2-way communications to staff, as they increase their use cases, so too does their revenue contribution. Once Whispir is used for 4 or more use cases, there is a significant uplift in revenues per customer. This is what we refer to as our land-and-expand strategy. Turning to Slide 4. We continue to benefit from the ongoing demand for easy-to-use communication software to support macro communications trends, onboarding 43 net new customers during the quarter. These new customers bring total customer numbers to 750, 50% more than our customer base when we listed on the ASX in June 2019. Our new customer growth has been driven by many competitive advantages, including our ability to easily integrate with existing IT systems, while our low-code no-code platform with drag-and-drop functionality is easy for new customers to start using the software almost immediately. While many of these new customers are yet to have a material impact on our ARR, they provide momentum in the business to drive growth in FY '22 and beyond as they increase their platform use. Slide 5 shows our quarterly customer cash receipts, which increased 22.5% over the same period last year to $10.9 million. Existing customers were the key driver of this growth, increasing their platform usage to solve more communications challenges. The success of our land-and-expand strategy reflects the stickiness of our platform. ABF Events is a good example of a customer who has increased their platform use. A premier events company hosting conferences for small to medium businesses and entrepreneurs, ABF Events is leveraging our 2-way multichannel functionality to send contextually relevant and personalized communications to events, exhibitors and attendees. In addition, ABF is using Whispir to securely manage, automate and record visitor registration data, ensuring compliance with COVID-safe requirements. Turning to Slide 7. Now we are well funded for growth with a cash and equivalents balance of $51.7 million following our successful $45.9 million institutional placement and share purchase plan. Our capital raised at an issue price of $3.75 per share enables us to fast track our growth strategy and capitalize on macro growth trends. 1/3 of the money raised is being used to accelerate our product road map, which will generate higher value products and ensure our platform remains industry-leading. 1/3 will drive growth in our ANZ and Asia operations, while the remaining 30% will support our expansion in North America. I'll provide more detail on our progress in North America shortly. Product development remains a key to global growth and we continue to enhance our capability, investing $2.3 million in platform development over the quarter. We added new platform features and functionality, including updates to contacts, new templated buttons for web and automated web form response capture. We're also beta testing a new AI-driven message type predictor. We have already been building AI models to predict the message open rates, and those prototypes are already informing how we think about our road map moving forward. Turning to Slide 9. North America remains our largest market opportunity, and we are now well funded to increase our investment in the region. Our refined North American go-to-market strategy is targeting underserviced SME and SMB customers within the 5 key industries you can see here. We have proven expertise and solutions within these industries and are leveraging our existing blue chip case studies to increase our customer base. The next slide shows that while these 5 pickers only account for 5% of the total U.S. CPaaS market, it provides us with a USD 4.7 billion total addressable market. We're initially targeting around 150,000 SME and SMB companies with annual revenue ranging from USD 10 million through to USD 1 billion. Our new go-to-market strategy is already beginning to gain momentum, and we have onboarded 11 new customers in the quarter and have a growing pipeline of opportunities. Our partnerships with NASDAQ-listed communications provider 8x8, Vonage, Carahsoft and AWS further support our digital marketing activities in the region. We have also partnered with a key North American local government association, engaging local government leaders to increase our presence within the local government sector. Slide 11 shows new North American customers onboarded during the quarter. You can see that we are making real progress with our strategy, benefiting from increased investment in personnel, sales and marketing support. The next slide is an example of a new North American customer. Oak Hill City in Tennessee has implemented Whispir to streamline its reporting and management of local government issues such as potholes, graffiti, rubbish collection and street signage. Residents are now able to SMS using Whispir's rich messages to report issues, which reduced call center volumes and automate previously paid for base processes. Whispir's workflow is also being used to engage with external maintenance crews and speeding up invoicing and payments to these private contractors. Alongside our progress in North America, we are also continuing to increase our presence within Asia. We've recently onboarded and entered into a strategic partnership with SWA Digital in Indonesia, the digital arm of the country's leading business publication. SWA Digital is utilizing Whispir as a key component of digital transformation programs for their enterprise customers. Our platform is ideal for these type of projects as it easily integrates with existing IT systems, is easy for customers to use and can quickly be deployed without IT expertise. Slide 14 shows 6 key pillars of our growth strategy. We're investing in product innovation to increase platform usage from our existing customer base. We're leveraging our existing channel partners to cost-effectively acquire new customers and expand our footprint in ANZ, Asia and North America. And lastly, we're diversifying our channel partners to include global systems integrators, value-added resellers and our digital direct offering. A major growth driver for the business is digitization and digital transformation projects. Slide 15 highlights the size of this enduring macro trend. With the global digital transformation market growing at a CAGR of 22.5%, it is forecast to hit USD 1.4 trillion by 2027. And with this low-code no-code technology digitizes and automates communication processes, digital transformation has provided us a sure tailwind of significant short- and long-term growth opportunities. Turning to Slide 16. To cater to these macro trends and drive product lead growth, we're building real defensible intellectual property within Whispir. At the heart of our 5-year product road map is embedded prediction, detection and automation capabilities. AI and machine learning functionality will increase data-driven intelligence, creating higher-value products that improve engagement and make messages sent through our platform more valuable. Our ongoing investment in our product road map will broaden and deepen our competitive moat. Turning now to our FY '21 guidance. Our strong performance over the year-to-date ensures we are on track to meet or exceed our FY '21 expectations. ARR under both the former and new methodology is set to improve to between $53 million and $55.3 million, while revenue is expected to increase by 25% to 30% to between $49 million and $51 million. EBITDA will improve by 38% to 59% over FY '20 figures. And we're increasing our R&D investment by about 8% to 15% to in excess of $9 million. Before we finish, a quick recap on why Whispir exists. Put simply, we want to change the way the world communicates. We can see a world in the near future where organizations can communicate like people. We want to humanize the way organizations communicate with their stakeholders. We want to do this because we believe that value is created when people are engaged. So our promise to customers is that we enable them to master connection and engagement with other people at scale. Thank you for joining us on the Whispir journey. We hope today's update demonstrates that when organizations engage with people effectively, value is created. 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 Cameron Halkett with Wilsons.

[Cameron Halkett, Research Analyst]

Jeromy, Justin, thanks for taking the time this morning. First one, Jeromy, if we can talk about the new U.S. customer additions seen in Q3. You've done 11 in the period, and that compares to 7 in the prior half. So just wondering if you can talk a bit more around what you're seeing around that uptick? Is there further assistance by some of those new partnerships like 8x8 that you signed in the prior period and/or whether this is early evidence of the strategy shift in November bearing early fruit? And then I've got one more.

[Jeromy Wells, Co]

Yes. Thanks, Cameron. Look, it's actually a little bit of both. So we have excellent engagement with our channel partners and we're building substantive pipeline with those customers. Now some of those pipeline engagements obviously involve humans and more traditional enterprise sales processes where we support the channel partner with our subject matter expertise to facilitate and explore the sales process. So those channel partner deals are slightly larger and the opportunities are more sophisticated and complex, but we also see a blend of pipeline activity. We also see increasing activity from the digital direct initiatives that we've been incrementally rolling out, starting with North America. So the thing about the north -- the digital direct is that the deal sizes seem to be, although it's too early to be -- to have a sort of real statistical representation, slightly smaller in size in order -- because organizations are self-discovering and implementing the platform for smaller projects to get going with. Then obviously, we can support them on their digital transformation journey. So what we see is a nice balance between really healthy pipeline development of more mature types of opportunities as well as learning about the digital direct and refining those processes to make them as efficient as possible. And there's a lot of learnings to also be gained from this digital direct strategy.

[Cameron Halkett, Research Analyst]

Yes. Okay. And then second one is for Justin. Cash receipts in the period were mentioned as being negatively impacted by working capital movements. Just wondering if you can quantify this so we can get a feel for what the PCP growth might have been without that headwind.

[Justin Owen, Chief Financial Officer]

Look, thanks for your question. Look, at this point, we're just focusing on the cash receipt, cash movements for the period. In terms of quantifying, we provide that when we push out the full set of financials on P&L, balance sheet and cash flows. But suffice to say, there has been an impact on cash receipts or what we call working capital, which is a combination of both receipts from customers and also our AP perspective. So that's presented in Line 1.2b where we've seen the increase there. But again, it's impacted by working capital.

[Operator]

Your next question comes from Joshua Goodwill with Ord Minnett.

[Joshua Goodwill, Research Associate]

Justin, Jeromy, well done on the quarter. I was just hoping you could give a bit of color just in terms of the land-and-expand strategy. I recall you've often put in a slide with proportion of customers by use case. Maybe just if you could give us in general terms an update around where you're seeing your customers from a use case perspective and maybe in terms of how that MRR per customer is changing over time?

[Jeromy Wells, Co]

Yes, Joshua, it's Jeromy speaking. Look, I think it's a terrific question. Well, one of the great strengths of our business is the growth that comes from our existing installed base. And we've seen really strong consistent growth from our existing customers making a real contribution to the increase in ARR that we've been able to deliver this last quarter. So those trends remain really strong. We see our customer NPS scores in terms of their engagement with their customer success function all consistently high. We see very structured and systematic engagement. We have a number of digital initiatives to further automate those engagements and with the objective of even doing a better job than what we have, but it's a great asset that we have in terms of our installed base, and those trends remain healthy and vibrant.

[Operator]

[Operator Instructions] Your next question comes from Jules Cooper with Shaw and Partners.

[Jules Cooper, Senior Analyst]

Jeromy and Justin, I guess I want you to talk, Jeromy, a little bit about the seasonality that you see in the business. And I guess what -- if you could talk to the customer signings and then sort of the seasonal pattern that we see quarter-on-quarter. We don't have a lot of history quarterly, but just how that cadence sort of goes over the quarters? And then just with the usage of your existing customers, when we think of like Q1, Q2, how does that sort of play out over the year, given we've now got just the fourth quarter to go this year, I suppose?

[Jeromy Wells, Co]

Yes. Well, I think it's a really interesting question. And I'm not really drawing out in these numbers here that sort of a 4C-related presentation. But I suppose, look, the thing that we see in the business is a flattening out, the seasonality year-on-year. We've previously in earlier years when we had smaller customer numbers and the impact of cyclone season, bushfire season, the Christmas season, it was kind of more impactful. But now we see we have such a diversity of customers where the campaigns and the types of activity that they're running is becoming increasingly consistent. I think -- I suppose that the ones that are sort of the slightly odd ones now that saw a lot of a spike here, government-related activities around elections and things like that, then we can -- we see some increased activity. But by and large, we see it really becoming much more consistent and -- but the curve is, I suppose, in the quarter-on-quarter getting stronger. And that's just an outcome of the diversity of the customers and across regions and the breadth of business, yes.

[Jules Cooper, Senior Analyst]

Yes. Excellent. All right. Not just a maturing of the business, that's great. Now just one last one, just in terms of hiring and deploying the capital to grow the headcount in the business. Can you maybe just give us a sense for how you've progressed that through the quarter and then your expectations for hiring into Q4 please? That's the last question.

[Jeromy Wells, Co]

Yes. Look, in anticipation of the capital raising mid-Q3, obviously we've been getting ready. And so we've been nurturing a pipeline of really high-quality talents, particularly focusing on the sort of leadership of the expanded operational teams in the business and attracting world-class talent. And so that enabled us to onboard a number of really high-quality people and then support them with an expanded people and culture function and talent acquisition team. So that activity is ramping up out of pace, but we're not starting from a sort of -- from the ground in the center. We're well down that process. And look, there are people starting almost every day at the moment that have been through quite a robust process already in order to get there, so that's in hand. But what -- it's not -- we could understand when we think about recruitment increasing again in order to focus on this expediting the product road map and bringing it forward to deliver the products that will drive increased utilization from our existing customers and to make it easier for customers to self-discover through the digital direct channels. These initiatives require a broad range of different skill sets and different teams. So it's not like we have a bottleneck of -- we've got a whole lot of people for one specific team or one specific expertise. So it's a distributed approach to increasing capacity by building out various teams to enable us to expedite that road map and engage faster. So in a sense, it's like some of the top line numbers in terms of the growth and headcount waves. But obviously, our business, whilst it is generally transformative, it's manageable and achievable in that -- in a focused way. Look, I think you can see the business continues to execute in a measured and responsible way in terms of the approach we're taking to hire all these people.

[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]

Thank you very much. Look, it's -- we appreciate the time that everyone has taken to inspect our results for the quarter. For us, it's a quarter where we achieved a lot in terms of setting up the business for the execution of the strategy over the coming years. We're well funded. And for us, it's pretty straightforward. It's heads-down, focused execution of the strategy and focused on delivering expectations. We have a clear plan for the quarters ahead and we have a terrific business that we're proud of that's performing really strongly despite extraordinary market conditions. And we're grateful that you're all part of the journey.

[Operator]

That does concludes our conference for today. Thank you for participating. You may now disconnect.