Earnings call transcript: Tiny Ltd sees strong Q1 2025 growth amid strategic acquisitions

Tiny Ltd reported robust financial performance in Q1 2025, marked by a 41% year-over-year increase in adjusted EBITDA and a significant boost in adjusted free cash flow. The company’s recent acquisition of Serato and focus on digital services have positioned it well for future growth. According to InvestingPro data, the stock has faced headwinds, down 18.5% over the past year, though showing recent signs of recovery with a 5.4% gain in the past week. The stock’s current price of $40.93 reflects cautious investor sentiment amid broader market uncertainties.

Key Takeaways

• Adjusted EBITDA surged 41% YoY, with margins improving to over 20%.
• Recent acquisition of Serato expected to enhance recurring revenue.
• Digital services growth contributed nearly 24%, excluding divestitures.
• Stock price rose 2.2%, indicating cautious optimism among investors.

Company Performance

Tiny Ltd demonstrated strong performance in Q1 2025, driven by strategic acquisitions and a focus on digital services. The company reported a 41% increase in adjusted EBITDA, with margins improving significantly from 14% in Q1 2024 to over 20% this quarter. This growth is attributed to the successful integration of new acquisitions and an emphasis on leveraging AI and machine learning to enhance merchant insights.

Financial Highlights

• Adjusted EBITDA: Increased 41% year-over-year.
• Adjusted EBITDA margin: Improved to over 20%.
• Adjusted free cash flow: Increased 168% quarter-over-quarter.
• Pro forma revenue growth: 6% quarter-over-quarter.
• Digital services growth: Nearly 24%, excluding divestitures.

Outlook & Guidance

Looking forward, Tiny Ltd remains focused on reducing its net debt to adjusted EBITDA ratio, targeting a ratio of 2.5x or less. The company anticipates that the acquisition of Serato will enhance revenue and EBITDA in Q2 2025. With a market capitalization of $4.09 million and an EXCELLENT Financial Health Score of 3.83 on InvestingPro, Tiny Ltd continues evaluating further tuck-in and platform opportunities to sustain its growth momentum. Discover comprehensive analysis and Fair Value estimates for Tiny Ltd and 1,400+ other stocks with an InvestingPro subscription.

Executive Commentary

CEO Jordan Tope expressed optimism about the company’s future, stating, "We’re excited to have that enhance our recurring revenue, our overall revenue, our adjusted EBITDA." CFO Mike McKenna highlighted the company’s strategic flexibility, noting, "We’re getting some flexibility to redeploy capital." Tope also praised the performance of Letterbox, calling it a "standout performer."

Risks and Challenges

• E-commerce market softness: Could impact future growth if trends persist.
• Integration risks: Challenges in integrating new acquisitions could affect performance.
• Macroeconomic pressures: Broader economic conditions may influence consumer spending and business investment.

Q&A

During the earnings call, Max Ingram from Canaccord inquired about the growth drivers in digital services, potential further operational integrations, and the performance of Tiny Fund One. The company emphasized its focus on digital services and strategic acquisitions as key growth drivers.

Full transcript - Tiny Ltd (TINY) Q1 2025:

Conference Moderator: morning, and welcome to the Tiny Limited Q1 twenty twenty five Results Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question and answer session. Before we start, we ask you to take a moment to read the disclaimer at the beginning of the slides that accompany this presentation as it contains important information. We’d also 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 orientated 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, 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 security 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 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 disclaimer in the slides accompanying this presentation and in the company’s press release issued today for additional information. We use non IFRS financial measures to help investors understand our operating performance. Non IFRS financial measures may not be comparable to similarly titled measures used by other companies and should not be considered along with, but not as an alternative to, measures calculated in accordance with IFRS. I would now like to turn the call over to the executive team from Tiny for today’s earnings call. Please go ahead.

Jordan Tope, CEO, Tiny Limited: Thank you. Good morning, everyone. You’ve got Jordan Tope here, CEO of Tiny. I’m joined by Mike McKenna, our CFO, and, we’re excited to speak to you this morning. So really proud to report our q one results, which showed continued momentum on on all our strategic priorities.

First off, in Q1 or right at the end of Q1, we announced the acquisition of Serato, a global DJ software leader, excited to announce that we actually closed the transaction on May 12. This this really represents an ideal tiny acquisition. I mean, the the fundamentals of the business are quite strong. We see near term organic growth opportunities. You know, I’ll talk about it a bit more on the next slide, but we’re excited to get working with the team and partnering with the founders to drive long term value and growth for Tiny and XEROTO.

We also announced the integration of stamped repeat and no commerce under the new leadership of Jeremiah Prummer. Previously, he was the CEO of NoCommerce and he’s done an incredible job of growing that business and marketing it and really driving value for merchants. But we’re excited about the integration. We’re unifying reviews, loyalty, customer insights, retention, actually a number of other features under a common data layer and using machine learning and using AI to provide increased value to merchants. Think things like tracking and increased conversion and driving revenue and actually really rethinking the entire reviews and loyalty capability and feature.

So we’re excited to release that product, and we’re excited about the near term and long term road map there. And then finally, Dribbble officially launched its project and services offering. This is really part of the strategic refocus of the business. We’re generating additional transaction revenue for Dribbble through through GMV that’s now running through the platform. You know, we’re investing in the services platform.

We are we continue to partner with advertisers. And and along with the project and services offering, you know, this really this really actually drives further growth in our subscription offering. So it’s something that we’re focused on right now. And it’s really on the service of making Dribbble that destination where designers can can, you know, basically further their career, make money, come to the site and get inspiration. So we’ll continue to keep you updated on the progress there as well.

And then finally, on the financial highlights, you’ll see a 41% increase in our adjusted EBITDA for the quarter. That brings our LTM adjusted EBITDA to about $34,000,000 So again, really showing the continued progress of cost rationalization, focus on organic growth, big improvements in free cash flow generated, and Mike will talk a little bit more about that in terms of our debt reduction strategy and just managing cash flow and improving working capital. And then finally, excited to announce a $1,000,000 distribution from Tiny Fund one. And again, we’ll talk a little bit more about the increased disclosure there a little bit later in the presentation, but we do expect to be on a regular cadence of dividends there and we’ll continue to get better and better at disclosing the performance of the fund over the coming quarters. So Serato, we we are excited again to announce the closing on May 12.

Just as a reminder, and I know this is only about a month and a half ago, but, you know, this is the global DJ software leader. It has an amazing history of innovation and really is part of music and DJ culture. You know, this is this is a piece of software that is mentioned in in popular music, but it’s also a wonderful business with amazing organic growth opportunities. It’s expected to increase our recurring revenue by almost 70%, total revenue by greater than 20 and improve our adjusted EBITDA and improve our cash flow. We really do think this represents a transformational acquisition and it is that kind of ideal platform that we look for in terms of hardware partnerships, hardware moat, you know, even just technology and and innovation.

And we’re just excited to keep you updated on the progress of the investment and and to partner with the management team. So moving on to revenue. Revenue pro form a, our divestitures of of Frosty and ’80 ’20, we achieved 6% growth quarter over quarter, which is which we’re very, very proud of. And, you know, digital services is actually driving quite a bit of that growth, but we also saw growth in in our other platforms as well. There was some seasonality in our software and apps business compared to q four, but, you know, that was that was expected.

When we’re comparing q one twenty four to ’25, you’ll see some growth in digital services. Again, you know, x, sorry, x, frosting at ’20, actually, we grew, almost 24%. So that’s that’s great. And, and the decrease in our creative platform is really driven by that by that strategic shift in dribble, And there is some impact from enterprise revenue timing, especially with some bigger deals that landed in Q1, and you’ll see that smooth out over the rest of the year. And then finally, you’ll see some increase in the other platform and that was driven by our acquisition of MediaNet, but we’re also seeing some nice organic growth in our, other businesses as well, including WeWork Promotely and Meteor.

On the recurring revenue front, we saw some slight growth year over year compared to Q1 twenty twenty four, driven by our acquisition of MediaNet and our continued focus on improving recurring revenue in our businesses that have it. But the big story here, obviously, is our Serato acquisition. We’re going to have that included in our Q2 results and in 2025. It is expected to improve the ratio of recurring revenue for Tiny overall to 27%. And we just see some amazing opportunities to improve that organic recurring revenue growth, you know, with things like improving their payment strategy, near term development road map that we’ve been really working on in diligence and even just in the past few days after closing the deal.

We’re excited to keep reporting on our recurring revenue metric and and the growth there over the coming year. I’ll pass it on to Mike to to go over the next slide.

Mike McKenna, CFO, Tiny Limited: Okay. Thanks, Jordan. I’ll start off with adjusted EBITDA. And we are again reporting a strong quarter for adjusted EBITDA performance for the second quarter in a row. This has been a significant area of focus for us as the management team.

And as investors know, is viewed as a strong KPI for the business overall. So we’re very pleased with the progress that we’ve made in this area. Our adjusted EBITDA increased 41% when you look at the prior period. And when we adjust for those divestitures that Jordan mentioned, it’s actually up 63% compared to Q1 of twenty twenty four. So pretty significant increase, again, really driven by the cost rationalization initiatives, the continued focus on organic growth and just a strong overall focus on operating performance.

And so starting to see those results come through. I mentioned the overall margin and again, a margin again above 20% in the quarter. This is up from about 14% in Q1 of twenty twenty four. So really continuing to focus on that margin stability. We’re seeing improvement across the portfolio, and we’re going be able to maintain that through Q2.

And you’ll obviously see that increase with the acquisition of Serrato and the Serrato inclusion in Q2 given the nature of that business. Okay. So if we move on to adjusted free cash flow, again, another metric that we’ve got a lot of focus on internally as a management team. And obviously, you know, to, again, highlight to investors, the importance of this area of focus, again, we’re seeing very significant margin expansion here or increase overall in our free cash flow, know, 168% on a quarter over quarter basis. But I think the biggest thing to draw attention to in and around the adjusted free cash flow and, you know, we show this on a post debt servicing level.

So you can see, obviously, there’s plenty of room for the debt servicing that’s required. It’s just the smoothness of the quarter in the context of even comparing to a year ago or even a quarter ago. We did talk about this trend of less adjustments into some of the KPI calculations, and we’re seeing that trend flow through. And we’re going be able to see this continue through 2025. We will always continue to have business acquisition costs quarter to quarter, year over year, given that’s really the sort of core focus of our growth and the opportunities ahead of us.

But just as it relates to the sort of ongoing adjustments to these metrics, adjusted EBITDA and adjusted free cash flow, I think you’re seeing quite a bit of smoothness in the numbers now through Q1 and that will continue into Q2. And again, as these numbers continue to be enhanced, we’ll obviously have more opportunity for capital redeployment, whether that be to continue to repay debt or look for other growth initiatives. I’ll turn it back to Jordan now to talk briefly about the Tiny Fund one and some new disclosure that we provided in this quarterly overview.

Jordan Tope, CEO, Tiny Limited: Thanks, Mike. So really excited to start sharing a little bit more information. So this is the first quarter that we’re actually disclosing the revenue for Tiny Fund one. And as a reminder, Tiny Fund one, we’re we’re at about a 20% LP holder or GP, like, you know, that we we we get carry on an asset by asset basis. And Tiny Fund One owns majority stakes in some amazing businesses like Letterbox, Aeropress, BFunky, Matinah.

So it’s it’s it’s a priority of ours to keep telling you more about this fund, keep showing you the distributions, report on the on the revenue, and and keep pushing on on where we can give you more information. So you can see our quarter over quarter compared to prior year, we have an increase of about 13%. We’re pushing 17 or we’re at about $17,000,000 of revenue in Q1 twenty twenty five. You’ll see our combined on an unaudited revenue of about $66,000,000 for 2024 compared to 55,500,000.0 for 2023. That’s an increase of 19%.

And then finally, on the distributions, I’ll note that in 2024, we were less frequent, there is some lumpiness. But in 2025, we’re expected to be on a more regular cadence. We’re excited to keep reporting on these results, especially as it relates to revenue and the actual distributions we’re getting as a 20% LP and as part of the GP as if if and when we are getting our carry. And we’ll just keep you updated and keep improving. I’ll pass it back over to Mike to just give an update on our debt.

Mike McKenna, CFO, Tiny Limited: Yes. Thanks, Jordan. Another obviously strong financial indicator that we’ve been focused on, again, as management and for our investors is certainly trying to improve the net debt to adjusted EBITDA ratio. I guess everyone understands we focused on that in two areas, both from debt repayment and enhancing our earnings profile. These numbers are obviously pre the Serato acquisition.

But on a consolidated basis post Serato, our overall leverage levels are not really going to change that much. I think so we had got ourselves in a great position to do that transaction. We were able to finance it in a very strategic fashion while continuing to maintain our net debt to adjusted EBITDA levels. I think that’s really important given how much we’ve highlighted that. That’s part of our focus.

Also, Serato will continue to enhance the EBITDA profile and the cash flow profile And even some of the financing that we’ve taken on for that acquisition will be able to be repaid relatively quickly. So when we started these conference calls a few quarters back, we were up in the sort of 3.2x range. Happy to report that at the end of Q1, our leverage levels were at 2.7 times. Excuse me. And this is very getting very close to the target that we’d identified of people getting sort of down to to 2.5 times and again, both through debt repayment and improvement in the earnings profile.

So we’re going to keep focused on this. We’re getting some flexibility to redeploy capital, obviously, as you’ve just seen with the Serrano acquisition, and we’re going to continue to maintain flexibility to, again, look for more opportunities to redeploy capital, whether it be through growth opportunities, but more importantly, just to make sure that we’re maintaining the leverage levels we’ve talked about and getting ourselves down to that goal of 2.5 times or less. Okay. So that’s it for that. And I’ll turn it back to Jordan to finish up, talk a little bit about the roadmap and where we’re going to go for the rest of 2025.

Jordan Tope, CEO, Tiny Limited: Thank you, Mike. So just a quick update, and and we put we put this slide up, and it was only two weeks ago, so, in our 2024 results. And I I wanted to give a quick update on where we sit on this road map. And I mean, even before we start, like, I mean, I’m just excited about the progress we’ve made to date around improvements in adjusted EBITDA, free cash flow, improving our leverage ratios, hitting on strategic priority and like really our long term vision of owning and acquiring wonderful businesses and announcing and closing the acquisition of Serato. So I’m just I’m just proud of the work that that our team has done.

So I wanted to highlight that. And then, you know, as we look at the road map for EBITDA growth and and improving our performance, so you can see that improvement in q one. You can see that the impact of our cost discipline and our focus on margin improvement and all the things we said about increasing cash flow is starting to just show up in the results. And we still think that there’s more work to do, but you’ll continue to see that through 2025. You can see those Tiny Fund one distributions in Q1, a nice increase from Q4 twenty twenty four.

We’re excited to keep that coming and keep reporting on it and and and telling you more about the fund. And then finally, you’ll you’ll see the the results of Serato included from from May 12 and beyond. And we are going to you know, we’re excited to have that enhance our recurring revenue, our overall revenue, our adjusted EBITDA. And as Mike said, as we continue to pay down debt, as we continue to increase cash flow, it just gives us more flexible capital allocation opportunities. So we continue to evaluate tuck in and platform opportunities.

We continue to, you know, look at paying down debt to just give us flexibility, and we’re excited for what 2025 brings us. So thank you.

Mike McKenna, CFO, Tiny Limited: We can turn it over for questions now.

Conference Moderator: Thank you very much. Our first question comes from Max Ingram from Canaccord. Your line is open. Please go ahead.

Max Ingram, Analyst, Canaccord: Hey, good morning and thanks for taking my questions. My first one is on the growth. So pro form a the non core asset sale growth was positive. That’s a return to growth following a couple more muted quarters. So I was hoping you could talk to us a bit about what you’re seeing from customer conversations, especially with all the stuff going on in the macro.

I’m curious to see what to get a sense of what you’re seeing because that’s sort of it’s nice to see the growth, and I’m just curious what’s driving that.

Jordan Tope, CEO, Tiny Limited: Yeah. So so so big growth driven primarily by digital services, and it’s and I I I wouldn’t be lying if we didn’t see the same uncertainty and and, you know, that we’re not hyper aware of what’s going on in the world. But I I would say we haven’t seen that impact our overall growth in that segment, and and we continue to see strong pipeline. And I think that’s really a testament to the strength of the brand, the business, the work that we’re doing, and and really the work that we’ve been doing around diversifying our customer base from, you know, like, listen, we were we were primarily more focused two or three years ago on startups, and and now we’ve got startups, you know, medium sized enterprise, Fortune 500. We’re we’re kind of focusing on verticals.

So, you know, that diversification has helped us, and we filled up the pipeline. We focused on retainer work. So you’re really starting to see some of that in our results. I will say that there’s, you know, a little bit more softness in the ecommerce space, but I think, you know, with the recent announcement of, tariff reductions and, you know, starting to see some of those trade deals happen, I think I think more recently, we’ve seen people breathe a little bit, easier, and our merchants are are telling us that. But we’re working with our merchants to make sure that, like, we’re good partners for the long term and, just servicing them and making sure that we can help them during potentially tough times.

Max Ingram, Analyst, Canaccord: Thanks. That’s really helpful. My second question is on the streamlining of operation or the integration of operations of stamp, repeat and no commerce. There more opportunities for this in the future with other portfolio companies? Just curious your thoughts.

Jordan Tope, CEO, Tiny Limited: I would say yes. I would say it’s not our strategy as a matter of principle, but there are some businesses and we’re talking like, let’s say, or three, especially in the ecom portfolio that might make sense to get together and use resources and potentially save money or even just have synergy on the data side. So there are opportunities, but there but it’s I wouldn’t say it’s material.

Max Ingram, Analyst, Canaccord: Right. Okay. That makes sense. And then my last one, nice to see the disclosure on the fund performance. I don’t know if you’re able to disclose this, but I’d just be curious on maybe some of the standout performers in the fund.

Jordan Tope, CEO, Tiny Limited: I I can say that Letterbox continues to be a standout performer. The growth is impressive. I I don’t wanna I don’t wanna skirt around potentially disclosing what I’m not supposed to, but we we’re we’re looking to get more out there on the fund, and and I’m happy to highlight that Letterbox continues to be a standout performer. We continue to see really amazing user growth engagement. You’ll see, I think three days ago, are in Cannes and they just launched or they just announced the launch of their video store rental platform shows remains a top priority.

So we continue to be excited about that one. And I mean we’re excited about many of the businesses there, but that’s really a standout performer.

Max Ingram, Analyst, Canaccord: Great. Thanks for the color and I’ll pass the line.

Jordan Tope, CEO, Tiny Limited: Thanks Max.

Mike McKenna, CFO, Tiny Limited: Thanks Max.

Conference Moderator: We currently have no further questions. So at this point, I’d like to conclude today’s call. Thank you very much for joining. You may now disconnect your lines.

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