Good morning, and welcome to the Tiny Ltd. second quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and the number one on your telephone keypad. If you'd like to withdraw your question, hit star and then the number two. Before we start, we'd like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated.
Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Tiny and its business and disclosure regarding possible events, conditions, or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, and business prospects and opportunities. Such statements are made as of this date hereof, and Tiny assumes no obligation to update or revise them to reflect events, disclosures, or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Please refer to the forward-looking statements and information and future-oriented financial information section of the Company's public filings, which include, without limitation, Tiny's MD&A and its earnings press release issued to date for additional information. I'd like to now turn the call over to the executive team from Tiny for today's earnings call.
Hey, guys. Good morning, good afternoon to some. You've got Jordan Taub here, recently appointed CEO of Tiny. Yeah, it's great to be having this. This is our first earnings call as Tiny. It's also our first earnings call for Mike and myself. You know, we're both new here. I figured this is a good opportunity to provide a bit of an intro. You know, I wanted to highlight that, you know, this is our commitment to being transparent and upgrading our disclosure and kind of interacting with our investors and the investor community, and we're really excited to do this. So welcome, everyone. I'll try to keep this short and sweet.
You know, I've probably done this intro with some of you before, and if you heard me at the AGM, I did it, but I'll do the abridged version. I was appointed CEO of Tiny on June 6th. Prior to that, I was at WeCommerce, first running corporate development and then as CEO. You know, so I've been with Tiny and its predecessor for about three years. At WeCommerce, I led the acquisitions of Clean Canvas, NopCommerce, Repeat, and Uptime. You know, I've kind of been working away in the background for a long time, and I'm really honored and excited to take the role. Prior to that, I worked at Constellation Software, first for the founder of the business, Mark Leonard, and then in a portfolio running acquisitions, integrations, and managing a portfolio of vertical market software companies.
And before that, I spent, you know, probably far too long in the mid-market group at KPMG Corporate Finance. Really cut my teeth on M&A, you know, working for, you know, large strategics, doing corporate carve-outs, private equity, VC, founders. Sold everything from gummy vitamin factories, potato processing plants, radiology clinic software. And yeah, like, I mean, you know, I started my career as an accountant. I'm a CPA, and again, just really excited to get going here and to be working with Mike, and I'll pass it over to him for his introduction.
Great. Thanks, Jordan. As Jordan noted, I'm also quite excited to be part of this journey. I was appointed the CFO of Tiny on July 3rd, so just after the quarter ended, but excited to be here today to talk about our financial results. I come from a business called LifeSpeak, where I was also the CFO, another public company listed on the TSX, and I helped successfully lead that IPO in 2021. Previous to that, I had CFO experience at a business called Mobile Klinik, where we raised a significant amount of capital to build out a business across Canada, which we ultimately exited through a sale to TELUS. I also bring over a decade of capital markets experience in investment banking and M&A, having led the technology, media, and telecom group at Scotiabank.
So with that, Jordan, why don't we get into the more formal part of the call?
No problem, so even though we both just started, it's been a very busy quarter for us. You know, I'll start by highlighting that we completed our equity raise with Hosking Partners at the beginning of the quarter. This allowed us to acquire MediaNet Solutions, an Arizona-based provider of special education software, a business that's 98% SaaS revenue. You know, really highlighting our commitment to looking for more businesses like that. You know, strong recurring base, high cash flow, really, really strong retention. You know, I also wanted to highlight that we repaid about CAD 60 million of debt in the quarter, and we sit at net debt of just under CAD 100 million.
You know, you'll see our commitment to reducing that debt load and managing the balance sheet over the coming quarters. You know, as it gives us more flexibility to kind of operate and pursue our acquisition strategy. Something I wanted to start highlighting in these calls is just kind of, you know, picking two or three of our portfolio operating companies and giving a nice operational highlight or highlighting some accomplishments. The three I wanted to highlight this quarter were, you know, MetaLab was named a finalist for Fast Company's Design Company of the Year. This just highlights the exceptional work they're doing. We're really proud of that business. You know, it has a knock-on effect of being a really good marketing tool and allows us to win more business.
Meteor, which is an open-source JavaScript development framework, just released a massive update, Meteor 3.0. Big upgrade to their architecture, basically modernizes the platform. Again, really proud of the work they're doing. Congrats to the whole team, and we're excited for the growth we think that's gonna come from that. And finally, you know, a business that we acquired about six months ago, Repeat, you know, with the intention of kind of working closely with Stamped. We just announced that Stamped and Repeat were merging. We think this was an obvious, strategic decision. We think the combined platform really lends itself well to pursuing higher ACV customers. You know, and in particular, the combination of loyalty and retention is just something we think can drive meaningful revenue for our customers.
So really excited about those three things. I'll pass it over to Mike to, to start talking financials.
Great. Thanks, Jordan. First of all, start off on revenue. We had a decent quarter, especially in comparison to Q1, where we grew by about 4%. Comparing year over year, there was about 7% growth on a pure revenue basis. However, there was some impact with the timing of the RTO in Q2 of 2023, which does impact that number a little bit to the positive on our side. When we look out to Q3, though, we will start having more clean comparative quarters, which will be important for comparative purposes, year over year and quarter to quarter. We've seen good revenue growth. However, operationally, we're focused on increasing revenue growth as we look forward. Getting in a little bit further to what drove the increase in Q2, 2023.
Our creative platform area saw an increase of about CAD 1.7 million compared to Q2 of 2023. This was due to the successful landing of a large enterprise deal in the quarter, and it was a very strong result for that group. We also had some attributable growth in the software and app segment. When we think about the first six months, again, over the same period, 2023, we do have an increase that is attributable to the full quarter inclusion of the software and app segment in 2024. However, still showing promising growth year over year, even on a normalized basis. Jordan, is there anything else you'd like to add around revenue?
Yeah, I just add that, you know, if you're looking at the six months, especially for something like digital services, you can see the effort, or the results of our efforts to kinda diversify that revenue. You know, we made a commitment to diversify some of the startup work that we were doing with more mid-market and Fortune 500 companies. So you're seeing that increase compared to 2023. I think, you know, from our view, the market is improving quite a bit. You know, and ideally, we'll keep you updated on the performance of that digital services business.
The software and app segment, you know, you're looking at a quarter in 2023, which is a bit, you know, it's a bit, I wouldn't say messy, but it's a bit different, considering that it doesn't include a full quarter in the first quarter of 2023. But we are seeing decent growth there. We've added some acquisitions, you know, namely Clean Canvas, Repeat. And then in the creative platform, you know, we are seeing some really good progress on the enterprise side. The market has been soft transactionally. And in particular, Dribbble, we made the conscious decision to remove the paywall there, with the intention of increasing interactions, increasing job inquiries, making the experience on the site better. And, you know, this is already having a big impact.
We're already seeing interactions go up, and this is all in the service of looking for additional revenue opportunities through transactions. You know, and we'll have more to tell you about that in the coming quarters. I'll pass it back over to Mike.
Great. One of the other items that we wanna keep making sure that we're reporting on during these calls are some financial KPIs. One of them would be recurring revenue. This is a key area of focus for the business. Jordan mentioned the acquisition of MediaNet at the start of the call, that closed during the quarter. This was an excellent acquisition for our company and provides a 98% SaaS-based subscription revenue model. This highlights our commitment and strategic focus to acquiring recurring revenue-type platforms. The MediaNet business, while a strong contributor of recurring revenue, is not a significant contributor to revenue overall, however, does provide us an interesting platform and opportunity for growth.
Recurring revenue in the quarter was CAD 9.6 million, which made up about 19% of our total revenue, a slight increase when compared to the same quarter of last year. But again, there is some impact of the full quarter inclusion of the software and app segment, which is a significant portion of our overall recurring revenue. I think, though, you can pick up on the theme of what we're trying to get to, both from a reporting perspective and from an operational perspective. You know, recurring revenue type businesses are important, and as we think about our acquisition strategy going forward, they'll play a key role, and the MediaNet acquisition highlights that. We move on to EBITDA.
Again, certainly an area of the income statement or a calculated number that has, you know, some significant noise from the timing of the RTO share transaction in 2023. However, without the gain, we've seen significant efficiency and increased performance at the EBITDA line. This is also a number where we're gonna be looking to seek continuous improvement as we roll forward in the year, largely due to the improvement of the income statement on the cost side. So as we talk about revenue growth and see opportunities for revenue, increases and operational, really operational efficiencies are gonna be a key focus for us. Because ultimately, EBITDA and cash flow are very important to this business as we think about, you know, servicing debt and finding opportunities to reinvest capital.
So you'll see some improvements at the EBITDA line from us going forward, again, largely due to our continued focus on operational efficiency. So a decent quarter overall and more to come, from us here. Another one of the metrics that we've added this quarter from a reporting perspective and from the perspective of disclosure and providing some additional information is about adjusted free cash flow, and we've done this on a number post-debt servicing. Certainly hearing from a lot of investors and the analysts who cover the stock, there was a desire and a hope that we would be more... Sorry, excuse me, we would provide more disclosure in and around our ability to service our debt load.
This is important both from the perspective of our own operations and ensuring that we are providing good, strong quality of information to investors. So while the numbers don't look super impressive this quarter, I think it's important for us to begin to provide these numbers, this level of detail as well, and continue to provide this on a quarter-to-quarter basis going forward. As you can see, we made significant debt repayments during the quarter, and also managed scheduled debt repayments that were higher this quarter than they had been in previous quarters. That scheduled debt repayments number will level out as we move through the balance of the year, and we'll be back to a more normalized number. Also, our free cash flow in the quarter is significantly impacted by the timing of some of the transactional nature of the business.
We mentioned that large enterprise deal that was a successful addition to the creative platforms area. Well, the timing of that business, or sorry, the timing of that deal, also impacted significantly the free cash flow or and/or adjusted free cash flow because it was Q2 revenue, but paid to us in Q3. While we've now collected on that business, you'll see a bit of a reversal in the free cash flow calculation, given the nature of the impact on working capital. So again, new information this quarter, new disclosure. We will continue to disclose these numbers. You'll continue to see improvements from us in these numbers, given our focus on operational efficiency, and we wanna make sure that we're highlighting the fact that we're adequately servicing the debt that we have, making significant principal repayments as well.
That's an important part of the plan going forward, and Jordan's gonna touch on that a little bit more on the next slide.
Yeah, I would just add, you know, just also on the free cash flow, you know, this does bounce around quarter to quarter, especially given, you know, what Mike outlined there. You know, these enterprise deals, especially the large one that we signed in the creative platform in this quarter, and given the nature of some of the digital services, collections, and receivables that we have. So, you know, we're focused on long-term trends. We're focused on long-term free cash flow generation. We wanna make sure we're reducing our interest expense. We wanna make sure that we're paying down our debt, you know, both scheduled and voluntary. So, you know, now that we have this, you know, this is kind of the long-term key metric and North Star that we're focused on.
You know, I'm excited to just track it over the long term. You know, touching on debt, I talked about it on the first slide. You know, I really just wanted to highlight the commitment to managing the balance sheet, showing that we're paying attention to our leverage levels, and we've included this, you know, an illustrative calculation of net debt to Adjusted EBITDA, which is what our lenders are looking at. You can see it coming down to a level that we think is much more comfortable and that will continue to go down. In the quarter, we paid down CAD 60 million of total debt, and you know, this is generating significant interest savings for us. We're committed to continuing that.
We have both scheduled and voluntary payments coming up, and I'm excited to just keep reporting on this. And, you know, finally, you know, if you were at the AGM, I went through the same priorities and the same things that I wanted to keep talking about, or, you know, I kind of posed this goal, you know, what do I want to be talking about at next year's AGM? And I will say this again, because I think it's important. You know, our strategic areas of focus are pretty simple. We want to increase cash flow. How are we going to do that? We're investing in organic growth, and we're controlling our costs and looking for savings where it makes sense.
That doesn't mean that we're cutting costs for the sake of costs or cutting costs, you know, where we think it hurts the business, but we do think there are opportunities. We're focused on finding really great acquisitions that fit our criteria, our culture. We're focused on recurring revenue. We're looking at, you know, where we can find really good opportunities to get good value tuck-ins for our businesses, things like Uptime, Repeat. You know, we're seeing tons of opportunity in the VC class of 2021 and 2022. You know, they've raised money. They're not going to raise again. They view us as a great home for their business. They believe that we can offer them some strategic value, and, you know, that's really resonating. So we're trying to be opportunistic there.
You know, I'll highlight again that, you know, we've said this a number of times in the presentation, but we're dedicated to managing and reducing our debt levels. You know, this is just, this is twofold. Like, it increases our cash flow, and it gives us more flexibility to do acquisitions and operate freely. And finally, and we think this is important, and it touches on the big tagline at the top, but you know, we're focused on incentive plans that really align to our long-term goals, and that's really generating really good organic growth and focusing on free cash flow generation. And I think all of this is in the service of ensuring that Tiny is this great long-term home for founders, for companies, for employees.
It's something we are hyper-focused on, and we take great pride in. You know, and I have conversations with founders, you know, they've reached out to us, or when we reach out to them, they're excited to potentially be a part of Tiny, and it's not something that we take lightly. So it's something that we think about all the time, is how do we make sure that story and that package that we can offer a founder is aligned to our objectives and makes this the best place for them to end up? You know, how do we continue to be the acquirer of choice for these people?
So, I'm, you know, happy to keep reporting back on what those things are and the experiments we're running and how we're designing incentives, but it's something that we are, you know, we think of as one of the biggest priorities. So, thank you all for joining us. We are excited to continue doing these and being transparent with all of you, and, we can open it up to questions. Thank you.
Thank you. As a reminder, please press star followed by the number one if you'd like to ask a question, and ensure your devices are muted locally when it's your turn to speak. Our first question today comes from Daniel Chan with TD Securities. Please go ahead. Your line is open.
Hi. Good morning, guys. Thanks for doing this call. Really appreciate it. Thanks for the color on the capital deployment strategy. Just wanted to double-click on that a little bit more. Are you prioritizing any one of those initiatives more than the other? So, for example, like, are you gonna prioritize debt repair, pay that down before you focus on M&A and organic growth, and maybe a second part to that question is, like, how are you thinking about the source of that capital? Should we think more about, like, organic cash flows, or is it gonna be potentially more equity raises? Anything like that would be helpful. Thank you.
Yeah. I think it will depend. We're doing it on a case-by-case basis. Right now, if we think that there's a really good platform acquisition, that we have a high degree of confidence in, that's at a really, you know, really fair price, and it hits all the notes, I think, you know, we would be silly not to prioritize that and look to make sure the structure of that transaction was appropriate. So, you know, I think if it's big enough, you know, we've received interest from partners that they would participate in a raise, so that is available. But it depends on the size.
Like, I think for smaller acquisitions and ones that are, you know, highly accretive or where we see great value and the price is good, we do have room to do those types of acquisitions. So, yeah, I know that a depends answer is not what you're looking for. Maybe it's kind of the standard, but right now, you see that we're focused on paying down debt, but we are not stopping our search for great acquisitions, and we have a great pipeline.
Okay, thanks for that. And then you mentioned in one of your slides that-- Sorry, go ahead, Mike.
Oh, Jordan, I was just gonna add, I think, Dan, importantly, right, what Jordan's trying to get at is, you know, ultimately sort of right, right-sizing that debt level. It does provide, you know, some of the flexibility that you're talking about or you asked about, right? So when we get to the spot that we're most comfortable with, then ultimately, you know, it provides a bit more flexibility for us, you know, to deploy capital in a variety of different ways. So I think that's really the focus. But again, it's all sort of in the nature of keeping consistent with the theme of how the business has been built to date, right?
Yeah, that's helpful. And actually, I was gonna ask, like, what is that level for you guys? You mentioned one of the slides that at three point one times, you're getting closer to a level that you're comfortable with. What are you targeting, let's say, over the next year?
Yeah, look, I'll take that one. And look, getting that number into the, you know, sort of two and a half range at the top to sort of probably the high end is ultimately ideal, right? We are very fortunate to have a very good cash flowing business. And we do have some, you know, scheduled principal repayments in the coming quarters. So getting that to the level that we're talking about is not necessarily gonna be a challenge for us. You know, there is a construct around, you know, capital deployment to, you know, repay debt versus redeploying it in other areas of the business or, you know, other acquisition opportunities that Jordan sort of highlighted.
But I think you can see from that slide, right, it's pretty consistently been going down over the last three quarters that we highlighted, right? And I think that's a trend we're gonna wanna see continue for the next few quarters. You know, and ideally, we get to two and a half. That's. The business can easily handle that. And maybe we can even get it lower, but again, you know, as we're thinking about, you know, ideal targets, you know, we'd wanna be sort of two and a half on the high end.
That's helpful, Mike. Wanna dig into the software business a little bit. Merchant count at Shopify was healthy this quarter, and that's usually translated to stronger results in the e-commerce business. We're estimating that software and apps revenue declined organically this quarter. Can you help us reconcile the strength from Shopify, especially with the strong merchant growth that they've had this quarter and what seems to be weak organic growth in that segment?
Yeah, I think I can explain that pretty simply. Like, the theme business is somewhat seasonal and, you know, even with merchant growth, we see a lot of fluctuation month to month, depending on, you know, stronger SMB growth or certain kind of verticals or, you know, our piracy campaign either slowing down or speeding up based on Shopify's interaction with us. So that can definitely drive some fluctuation quarter over quarter. And really, that's what's driving some of the organic growth decline in from Q2 to Q1 in the software and app segment. Especially as we look to something like, you know, Clean Canvas, where we kicked off a big license enforcement campaign, and we recovered quite a bit of revenue in Q1, and, you know, even in Archetype, a similar thing.
And then we don't have that recur in Q2. It has a big impact, so it's, you know, it's kind of driven by seasonal and license enforcement.
Thanks, Jordan. I'll pass the line.
Thank you again. As a reminder, it's star one if you'd like to ask a question. Our next question comes from Max Ingram with Canaccord Genuity. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question. So my first one, you guys sort of touched on it briefly in your prepared remarks on the large enterprise deal within creative. So my question is: Can you give us a bit more color on how the shift to enterprise is going more generally for the overall business, and then maybe on the digital services side and the creative sides individually?
Yeah, sure. I'll talk a bit about the creative side. Like, so this is specifically in Creative Market. You know, generally, it's going well. You know, they have a really big catalog, well-diversified catalog that keeps getting bigger and bigger. And actually, these enterprise deals are a great boon to creators because they are, you know, they provide a really big payday that actually would be much, much larger than kind of one-off transactions that they might be used to. Sales team is busy, pipeline is strong. So you know, we're quite optimistic about the business. Like, it's an area that's growing, and it's offsetting some of the decline in the more transactional or market driven revenue and Creative Market.
On digital services, we're, you know, we're kind of seeing the first shoots of that diversification spring up here. And yeah, like, it's going well. The market is turning. We're getting more diversified business. And yeah, I mean, you can see that in the year-over-year increase for that six-month period. So yeah, it's going well.
Okay, that's helpful. Thanks. And then my second one is on the M&A topic, just an extension of that. My question would be: Are you looking to expand your acquisition verticals, or are you gonna kind of continue to play with what you've done historically? Because I know there's a focus on the recurring revenue side of things, but then I also know, you know, something like AeroPress has been a great business for you. So any color there might be helpful.
Yeah. Well, I think it'll be opportunistic again. We are getting quite a bit of inbound, but we are looking to what we believe we do well, right? So I think if we believe that we have a competitive advantage or a best practice or some kind of unfair, you know, knowledge, those are acquisitions we would definitely consider, right? I think we've learned a ton from the AeroPress acquisition. We have a pretty good strength in community businesses, you know, like we think we know what to do, what not to do. We've learned some lessons. So like, you know, the acquisition of Letterboxd kind of hits home on something that we think we understand really well.
So even though there's a priority on recurring revenue, I think, you know, the places that we sit today and even tangential verticals or tangential spaces or tuck-ins for those businesses are definitely areas we would consider for, you know, the right price, the right management team, the right opportunity. So I wouldn't rule those out.
Okay. That's helpful. Thanks. And then the last one for me, it's great to see the long-term leverage target. Is there a target model for growth or margins that you guys are thinking of pursuing, or any plans to establish one down the road?
I think not at the moment, but it's something that we would definitely consider disclosing and work towards, and we can keep you posted. It's a bit difficult right now, considering, you know, how diversified the portfolio is, so you know, internally, I think we've got them if, you know, for the different types of businesses, but it's a bit more difficult at the Tiny level to kind of just throw one out at this point.
Right. Okay, fair enough. I will pass the line. Thanks for taking my questions.
Thank you.
Thank you, and as a final reminder, it's star one, if you'd like to ask a question today. We have no further questions in queue, so I'll turn the call back to the executive team for any closing comments.
Thanks, guys. Thanks for joining. You know, we look forward to hearing from all of you. Please reach out. We're happy to chat with you if you have any additional questions, and we look forward to the next call.
This concludes today's call.
Have a great weekend.
Thank you for joining.
Bye.
Thank you.