Boardwalktech Software Corp. (OTCQB:BWLKF) Q1 2023 Earnings Conference Call August 18, 2022 4:30 PM ET
Company Participants
Graham Farrell – Investor Relations
Andrew Duncan – President and Chief Executive Officer
Charlie Glavin – Chief Financial Officer
Conference Call Participants
Kris Tuttle – SoundView Capital
Operator
Good afternoon, ladies and gentlemen, and welcome to the Boardwalktech Software Corp. Second Quarter 2022 Earnings Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] A reminder that today’s call is being recorded, Thursday, August 18, 2022.
I would now like to turn the conference over to Graham Farrell, Investor Relations. Please go ahead, sir.
Graham Farrell
Thank you, operator. Good afternoon and welcome everyone to Boardwalktech Software quarterly conference call. This call will cover Boardwalktech’s Tech financial and operating results for the fiscal first quarter ended June 30, 2022. Following our prepared remarks, we will open the conference call to a question-and-answer session.
Our call today will be led by Boardwalk Tech’s President and Chief Executive Officer, Andy Duncan along with the company’s Chief Financial Officer, Charlie Glavin.
Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company’s actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our regulatory filings.
Today, we issued our first quarter fiscal 2023 financial results, a copy of which is available in the Investor Relations section of our website, www.boardwalktech.com. and posted on SEDAR. I would like to remind everyone that today’s call is being recorded on Thursday, August 18, 2022.
I will now turn the call over to President, Chief Executive Officer, Boardwalktech, Andy Duncan. Please go ahead, Andy.
Andrew Duncan
Thank you, Graham. Welcome everyone to Boardwalk Tech’s quarterly earnings call to discuss the company’s financial results for the first quarter fiscal 2023 ended June 30, 2022. Thank you for taking time out of your day to join us, we’re delighted that you’re here.
Before I begin, please make note that all dollar figures reported on today’s call are in U.S. dollars unless otherwise noted. When we had our last earnings conference call, I told investors that we’ve been led our results through the talking. During the June quarter, we believe we took yet another positive step on that path. We are pleased to report solid growth in our financial results for the first quarter of fiscal 2023 as the business momentum we saw exiting last year continues into the current year across all aspects of our business. With our sequential and year-over-year growth in revenue, continued improvement in EBITDA, and positive cash flow from operations, we believe we are executing to that outlook and potential.
We are pleased to report first quarter revenue of $1.5 million, which represents a 48% growth versus last year’s revenue of $1 million. And also, this represents a 26% sequential growth rate, since we reported our results last quarter. Further, our annualized recurring revenue or ARR has already exceeded the $5 million level as of the end of the June quarter and continues to grow each month. The portion of revenue from new and recurring SaaS licenses in Q1 fiscal 2023 grew 89% year-over-year.
Consequently, even though this is the first quarter, since we announced official revenue guidance for the upcoming fiscal year, our results exiting the June quarter saw it’s trending at the top of that $6.5 million to $7 million range or 60% year-over-year growth at the high end of this range. This increase in revenue was driven by both organic growth, as well as new contract wins. What you’ve heard us refer to as our land and expand strategy. These new contract wins are still being integrated and should continue to add to our bottom line in the coming quarters.
Since the launch of our SaaS model in 2018, total revenue from new contracts signed accounted for 86% of total revenue in Q1 fiscal ’23, compared to 71% in the prior year expanding at a 45% compound annual growth rate. As an example of both our business momentum and our land and expand strategy, the key highlights for the quarter included two customers of note: The first was a newly license customer from the recently established banking and financial services channel, while the other involve the expansion of license and services with an existing customer, one of the world’s top accounting and consulting firms.
Regarding this customer, this is the second major increase in the recurring license portion of our business, since they first signed with Boardwalk in 2018, which we believe reflects how much this sophisticated global entity perceives the value add of our solutions, as this customer continues to expand the use of our digital ledger across its business groups and with its clients. As we announced, the license expansion was effectively as of the end of June 30, 2022 and therefore the majority of this impact will show up in our results in the coming quarters.
I would like to expand on the significance of the banking and financial services channel as it is becoming an exciting growth opportunity for Boardwalktech. As we previously announced, our move into the financial services industry is the result of regulatory oversight and the use of unstructured data, mainly excel, spreadsheet processes in the day-to-day operations in all of these banks. We have a robust solution that is very unique in the industry, which allows minimal disruption to our clients and users, while improving the business processes. And at the same time ensures compliant oversight of the data helping our clients avoid possible large punitive fines, but also improving their operations.
Perhaps the best way to illustrate Boardwalktech’s value add is a recent comment from the senior director at this page, when she said, what used to take me two days now takes me 15 minutes with the Boardwalk application. It is our expectation with continued banking regulatory oversight that we will see increasing demand for our solution and we will be able to increase our market share in this very exciting financial services industry.
Since our fiscal year 2023 outlook was the company’s first guidance, we opted to be more conservative with that initial projection. The guidance that we issued was based on deals that we had recently closed at the end of fiscal 2022 or were in the closing stage and thus did not rely upon conversion of new business that is currently in our pipeline. Thus, any such success in closing new pipeline deals will be incremental to that guidance.
Given that we are an enterprise solution, our objective remains to provide investors with annual forward guidance at the end of each fiscal year based on what the company has good visibility on, rather than on anticipated pipeline conversion rates. However, if new business wins lead to a material increase in our internal forecast, then the company will update its guidance accordingly to provide a clearer picture of the businesses trajectory.
Before I pass the call over to Charlie to have him go through our financial numbers in more detail, I’d like to provide you with the summary of the headline numbers. As a result of these higher revenue and ARR levels, our gross margins hit a company record of 90.2%, up from 87.9% in the previous quarter. Adjusted EBITDA for the quarter was a loss of approximately $260,000, an improvement of 53% from the $540,000 loss in fiscal Q1 2022 and a 44% sequential improvement from the $450,000 loss in Q4 of 2022.
Thus, given our revenue growth, business momentum and outlook plus cash and earnings improvements, we believe the overall business is at an inflection point and continues its progress toward profitability without sacrificing the great growth opportunities ahead of us.
With that, I will now turn it over to our Chief Financial Officer, Charlie Glavin, who will provide additional details on the quarter’s financial results. Following Charlie’s remarks, we will be opened to the floor or we will open the floor to questions-and-answers. Again, post Charlie’s overview. Charlie, it’s all yours.
Charlie Glavin
Thanks, Andy and welcome everyone. Before I begin, I’d like to take a moment to remind our listeners that also here is reported on today’s call in our filings are in U.S. dollars and then our fiscal year ends March 31 with reported figures based on IFRS standards unless otherwise specified. Additional details can be found in our financial statements and MD&A as filed on SEDAR.
As Andy mentioned, total revenue for the first quarter of fiscal 2023 was [1,500,000] (ph), which is a 48% increase from last year’s revenue of $1 million and a 26% sequential growth from the $1.2 million we just reported for the fourth quarter of fiscal 2022. That total revenue growth came from both from the addition of new customers and the expansion of existing licenses as the portion of our revenue from new and recurring SaaS licenses in the first quarter of fiscal 2023 grew to 72% of total revenue, which is up from 57% at this time last year.
In absolute terms, this means that revenue from new and recurring SaaS licenses grew 89% year-over-year. Since the company implemented its SaaS business model in 2018, total revenue from new contracts signed since 2018, now comprised 86% of our total revenue in the first quarter of fiscal 2023, compared to 71% at this time last year. While total revenue from these customers has grown at a 45% compounded annual growth rate, since 2018, the revenue from new SaaS licenses signed since 2018 has actually grown at a 67% CAGR.
We believe the negative effects from pre-2018 legacy customers has now stabilized as these legacy customers have either migrated to a recurring license or adopted to state status quo. In addition, the company expects that the contribution from professional services will continue to grow in absolute dollars over time, but decrease as a percentage of total revenue. The levels are expected to fluctuate on a quarter-by-quarter basis. In fact, during the first quarter, professional service revenue did decline 10% sequentially or approximately $45,000, but it is expected to rebrand and grow sequentially in the September quarter.
Again, we do expect professional services revenue to grow in absolute dollars as our overall business grows, but we did not include any such revenue contribution from professional services when we gave our initial revenue guidance for the fiscal year. The company defines annualized recurring revenue or ARR, which is a non-IFRS metric as the recurring revenue expected based on annual license subscriptions and recurring services contracts. As a result of new license closings ARR as of June 30, 2022 was $5.1 million, that’s a 56% improvement from the $3.2 ARR level in June of 2021 and a 38% sequential improvement from the $3.7 million ARR level we just disclosed last quarter.
Exiting August ARR is already trending closer to the $6 million level, which is earlier than the year end target we disclosed exiting last year. These ARR improvements are not only from the closing of higher license renewals in new customers, but from timing as the full impact of deals closed late in a quarter are not reflected in the full quarterly results, such as the case when we announced the latest license expansion with one of our largest customers effective as of the end of June. As the full impact of that expansion is not fully reflected in the quarterly results we just reported.
Boardwalktech receives payment at the beginning of each annual license term and then the deferred revenue is recognized monthly over the remaining term of that license. So a new deal or renewal that closes in the month of June would only reflect one month of amortized revenue from the recently announced large contract renewal.
Gross margin for the first quarter of fiscal 2023 reached an historic high of 90.2%, which is a 4.7 percentage point year-over-year increase from fiscal 2022, and a 2.6 point increase from Q4 of fiscal 2022. These gross margin improvements were all due to higher revenue levels, including better pricing and higher renewals, which result in previously projected economies of scale and operating leverage.
The company intends to make higher investments with its hosting sub-processor that may limit similar gross margin improvement sequentially in near-term even as revenue continues to grow, but expect these investments to support further growth while improving both customer service and reducing costs over the next 18 months. We also expect to pass through some of these cost savings to our customers. Net of these impacts is investors should continue to expect comparable gross margins to be in the 90% range that we just reported.
Net loss for the first quarter of fiscal 2023 was a negative $850,000 or loss of $0.02 per basic and diluted share, which is a 23% improvement versus the net loss of $1.1 million in the fourth quarter, as well as the net loss of $1.1 million last year. While adjusted operating expenses did increase sequentially by $100,000 last quarter, from both renewed travel and previously mentioned select hires. Revenue and cash growth both outpaced the spending as the company continues to both control costs, while investing in future growth opportunities. The point being that we will continue to be diligent in our spending and not cutting our way to profitability, but growing our way to success.
Non-IFRS net loss as defined in the adjusted EBITDA in non-IFRS financial measures section of our MDA. For the first quarter of fiscal 2023, totaled $270,000 or a loss of $0.01 per basic and diluted share, which is a 52% year-over-year improvement versus a loss of $558,000 in the first quarter of fiscal 2022 and a 45% sequential improvement from the $490,000 non-IFRS loss in the fourth quarter of last year.
Adjusted EBITDA for the quarter as Andy mentioned was a loss approximately $260,000, which is a 53% improvement from the $540,000 loss in the first quarter of last year and a 44% sequential improvement from the $450,000 loss in the fourth quarter of last year. The company finished the first quarter of fiscal 2023 with a solid balance sheet ending cash improved this quarter as cash inflows from operation was a positive $900,000 and our cash balance increased during the quarter to $1.7 million as of June 30, 2022. With an additional $1.8 million of receivables from new and renewing annual licenses yet to be collected.
As new licenses and renewal of licenses occur, the combined ARR and cash balances should also continue to grow. As a reminder, the cash — the company has no debt. And these organic sources will enable the company we believe to fund its current growth projections.
Before closing, let me provide or reiterate a few comments about our outlook update. As Andy mentioned, the company’s revenue is already tracking at the top end of our initial $6.5 million to $7 million guidance range, which would be 60% year-over-year growth at a high end. Several key points to make in regards to this guidance and any upside potential. First, to emphasize, this initial guidance was based on what we had already closed rather than rely upon pipeline conversion. We felt it prudent that our first public guidance should be based on high visibility not just projections.
Second, 95% of that incremental growth in this guidance is from current license revenue and as evidenced by the ARR growth, which we alluded to. Third, this guidance does not assume any revenue growth from professional services. However, this does not preclude any additional professional services revenue adding upside to this initial guidance range. And fourth, this initial guidance did not relying on any new conversions from our pipeline, but this does not mean that we aren’t making progress in closing in such deals as investors will hear in future announcements.
So in conclusion, given the company’s revenue growth and outlook, the company continues to believe that it has sufficient funds and current receivables such that it does not need to do any equity financing events in order to achieve its guidance, while laying the foundations for the upside growth, which we alluded to.
With that, let me now turn it back over to Andy.
Andrew Duncan
Thank you, Charlie. I’d again like to thank everyone for taking time out of your summer to join us on the call today. While we are happy with how the business is progressing in our recent results, we remain committed to executing not only to our plan, but into tapping into additional potential growth opportunities that we see ahead of us. Our goal is not to hit guidance, but to exceed it and we look forward to providing you progress on that goal in the future.
I’d like to now pass it over to the operator, who can open up the Q&A portion of the call.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Kris Tuttle of SoundView Capital. Please go ahead.
Kris Tuttle
Hi, thanks very much and congratulations on what — I’m sure you’re proud of in terms of sequential progress there. I did have a couple of questions: one of them is maybe can you remind us what the — your standard contract length is on your current revenue deals? And along with that, if you see any shifts or changes in terms of your — the duration of your sales cycle?
Andrew Duncan
Sure, Kris, thanks for being on the call. You’ve got a little late in the question there. So I think, I got it all. Our average contract length is anywhere from three to four years and the length of time that is taking us to close contracts. Historically, it’s been kind of nine to 10 months and that continues to shrink down as we get a little bit more mature as a company and being able to close some of these deals. We also look at the financial services deals, certainly take a little bit longer as we’re new into that particular area. But we also see those in the future shrinking as well.
Charlie Glavin
Kris, I’d also point out one thing Andy mentioned those average term, but keep in mind that large — one of our largest customers has expanded over the course of that three years. And the other thing to keep in mind is that our standard contract doesn’t usually have any sort of termination for convenience after the final acceptance. So consequently, even though we have a large deferred revenue liability as required under accounting, it’s not subject to a month-to-month cancellation. So in other words, we do non-refundable, we collect the money in the beginning and recognize it over that period. So if you’re taking a look at the balance sheet, that deferred revenue is not a cash related item.
Kris Tuttle
Okay. Yes, thanks for that clarification. Another question I had as you talked a lot about financial services. Could you round out for me looking at kind of your activity or pipeline? Like, what are the top three industries you see in terms of your opportunity over the next 12 to 18 months?
Andrew Duncan
Yes. Well, beyond the financial services industry, which we believe is key for our growth going forward, we are very focused on CPG, very focused on anything that is manufacturing and that has inventory risk of which there’s a lot of activity right now. And electronic components, chip manufacturers, big area of focus for us that I think you’ll see announcements in the future.
Kris Tuttle
Okay. And does that include any sort of cross enterprise applications like looking at supply chain and things like that, that are integrated across multiple different companies?
Andrew Duncan
No, absolutely. In fact, supply chain is a kind of a core application area where a lot of companies are utilizing our digital ledger platform to be able to connect to both their suppliers and their customers that mainly on the supply side to be able to exchange information and be able to exchange that information in a more rapid manner that allows them to be able to make decisions faster. That’s why when I mentioned inventory, which is such a vital and important component of a lot of these companies that the speed by which they can actually get to decisions and answer questions and gather data to be able to make those decisions, can make or break these companies’ quarters. And so the communication that they have and the need and the use of the Boardwalk digital ledger to be able to communicate with their various supply chain partners and entities is a very important piece of what we do.
Kris Tuttle
Okay. And last one for me [Multiple Speakers] Yes.
Charlie Glavin
Sorry, Kris, even though you didn’t ask us, and Andy, who has alluded to this in prior investor discussions, that cross pollinization also results in referrals. So several of our new deals came from existing customers, which I think is also critical. So it’s not just that we are doing well within each customer, but those customers are actually referring us out and even partnering to get us new deals.
Kris Tuttle
Oh, that’s great. That’s great. And last one for me, and then I’ll get off the box here. One of the big questions I get from people is whether or not you see usage of your platform in customers who are using it more as a monitoring like, risk management/security, kind of, solution. I know I could imagine that’s possible, but I don’t know if that’s something that you’re currently seeing or not. And so I wasn’t able to answer that question. Can you put me in there if you’re saying that?
Andrew Duncan
Yes. Chris, I mean, certainly, the whole ESG area is one that is booming right now. And when you look at security, you look at compliance, the major driver around what we’re doing at least initially in the financial services industry has a lot to do with compliance and security and making sure that the information that is being exchanged within these financial institutions is securely and properly being monitored and exchanged. And this is going to be a very important topic going forward for us in talking about secure information exchange and rapid decision making off of the valuable information that’s being exchanged.
Kris Tuttle
Okay. All right. Well, thanks guys. I’ll get out of the way for others. Thanks again, understood.
Andrew Duncan
Yes.
Operator
[Operator Instructions] There are no other questions from the phone lines. I’ll turn the conference back to Mr. Duncan for closing remarks.
Andrew Duncan
Great. Well, again, I would like to thank everyone for attending our Q1 conference call. And if you have any further questions or would like to go direct with either me or Charlie at any time. We’re open and available and again, really appreciate everyone’s time and attention. And appreciate your support of Boardwalktech. Thank you.
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