Finally got around to view the playback of the WSP Product Showcase from earlier this week and the related ASX announcement.
WSP launched 4 new service offerings this week. Initially, I was unimpressed - lots of AI-related jargon, but I changed my view after viewing the playback of the Product Showcase session.
https://www.whispir.com/en-au/blog/Whispir-Product-Innovation-Showcase/
Click Watch on Demand.
Whispir Talkbots - impressive demo of the Talkbot capability around 11:25 into the video.
- The Talkbot sounded like a natural person, with the local accent, pitching an upgrade to an existing customer
- Was able to detect, deflect customer pushback and keep the sales pitch going on the offer in what sounded like a normal sales conversation
- Customer ended up agreeing to receive an SMS with the pitched offer, which is an impressive outcome of that one conversation
- Conversations are fed back into the learning engine to improve the effectiveness of future Talkbot calls
The key WSP pitch is conversations like these can be made at scale, giving rise to increase in leads, conversions, productivity gains etc.
Content Assist - demo around 18:34 in the video
- Simple user-entry form to provide basic parameters around the content required for a given communication - communication channel (email, SMS etc) message, audience, tone, formality etc
- The WSP platform then uses Open AI’s ChatGPT platform to draft out the content
- Allows repeated attempts to get the content right, before porting into the WSP platform for actual transmission
- Brings to life the value proposition of allowing the platform to address Content + Purpose of Communication, while the user focused on Channel + Timing, the 4 elements of effective communication
From past experience of having to draft out different communications from operations-related SMS’s to update emails etc, I can see how this capability will help speed up effective communication using the capabilities of ChatGPT, from within the WSP platform.
Compliance Automation and Whispir Verify - more under-the-hood, back-end capabilities. Whispir Verify does not come across as revolutionary but there seems to be added security by the non-storing/deletion of the One-Time-Passwords after verification is completed.
Overall, the demo’s in the Showcase brought the first 2 capabilities to life quite clearly for me. I never liked Bots of any sort (either too dumb or too smart-arsed), but the fact that the Talkbot could engage in what sounded like a normal Sales conversation was impressive for me - the ability to target the audience, then unleash the Talkbots at scale is very exciting.
Also liked the fact that WSP has delivered against the Product Upgrade roadmap in Q1 with the promise of more to come throughout FY24. This reminds me of what Jenni Pilcher said in the early CY2023 chat - the platform base is “sorted”, which then allows for more capabilities like these to be built and pushed out. It was good to see the traction against that comment.
What remains is to see what the rate of uptake is, and what the impact on revenue is during FY24.
Discl: Held IRL and in SM
Extract from the ASX announcement:
My notes in reviewing the WSP FY2023 results.
Discl: Held IRL and on SM
SUMMARY
- FY23 has been a year of business consolidation and rationalisation in terms of (1) re-focused energies on Asia, exited the US (2) organisation structure right-sizing - stripped out $20m of cost per annum (3) washing through of direct Covid-related revenue - revenue hit taken
- FY23 is essentially the re-baselining of WSP going forward in a non-pandemic environment
- FY24 is poised to leverage on the FY23 business consolidation to grow revenue and get to cash flow positive
A disappointing but necessary painful year to reset the business from non-sustainable Covid-related revenue to a non-Covid BAU environment.
I like the bluechip customer list, the sticky nature of the platform, the telco strategy, and the ongoing essential need for businesses to have good communications management. But clearly, the Covid-driven high revenue days are over and a reset for the post-Covid environment has occurred.
Very tempting to give up on WSP and exit based on the promise that never really materialised. But management has taken decisive steps to rightsize and refocus the business and thus, a good platform for growth is now in place. FY24 will be a make-or-break year for management to prove that this is a sustainable growth business.
Will give it 2-3 more quarters to understand what the "new normal” looks like/can be expected in terms of revenue growth, profitability and cash flow, before making a call as to whether to stay invested or exit.
THE GOOD
Financials
- Gross margins 60.3%, up 1.8% on PCP, increasing traction in 2HFY23 where margins was 62.0%, up 3.4% on 1HFY23
- Asia revenue growth accelerates - 19% YoY increase - Telco channel partner go-to-market strategy is delivering growth
- Churn remains low, Revenue retention > 103%
- Good traction in reducing operating expenses of $51.2m, 16% lower than PCP, 2HFY23 reduced 33% on 1HFY23 as full effects of business rightsizing are felt
- FY2023 Exit Cost Base = $36m, as restructuring costs in FY23 fall away
- Free CashFlow $21.6m, was a 3% improvement on FY22, with 2HFY23 improving 66% on 1HFY23 - trending nicely to positive free cash flow
- Cash at Bank $4.3m + $6.5m unused debt facility - no requirement to raise further capital in FY24
Innovation
Continued innovation - 4 new product/revenue streams planned for FY24, 1 product release per Quarter
NOT SO GOOD
- Revenue $53.7m was down 24% from FY22 - cessation of one-off pandemic-related revenues, this is the post-Covid baseline Year 0 revenue
- Cash Flow Positive target moved again from FY23, then 1QFY24, now guided for 2HFY2024
WHAT TO WATCH OUT FOR
- Achievement of Positive Cash Flow
- Sustaining of flat operating cost base around ~$36m
- Gross margin improvements from favourable Telco wholesale pricing
FY24 Strategy
- Ability to deliver the FY24 Strategy in terms of (1) Revenue Growth (2) Sources and sustainability of Revenue Growth (3) Rollout of new Products and impact on revenue
My notes from the VC with Jenny Pilcher, CFO WSP (this is not a transcript). Wish I knew how to do a quick valuation ... bought the Damodran book, which is now in the mail, to learn ...
Discl: Hold 0.5% IRL, topped up 0.3% today IRL and in SM after the call. Good insights which really helped crystallise and put it together for me.
PLATFORM
- Low-code, no-code day-to-day use/operations - software is designed to be deployable “the next day after deal is done” - no need for much customer IT and IT development effort at all
- Entire platform is internally developed and organically grown - no acquisitions, hence no goodwill on balance sheet
SALES EXECUTION STRATEGY
- Land and Expand Use strategy - sell 1 or 2 use cases, then push to (1) add use cases (2) broaden communication scope/groups across the enterprise
- Customers are not only staying in, but are using/spending more - $20-30k revenue initially but can scale up quickly thereafter - platform is very sticky - good slide from the 1HFY23 results preso
NATURE OF REVENUE
- Per User license - 100% gross margin on this as there is no 3rd party involved
- Per message/transaction fee thereafter
- In normal years, expect revenue split to be 65% Transaction Fees: 35% Platform Fees - during Covid, the mix was 80%:20%
- Covid demonstrated the ability for the platform to be scaled quickly and was heavily tested for robustness
PIVOT TOWARDS CASH FLOW AND EBITDA, US PULLOUT
- 2021 capital raising was intended to invest in growth
- Hired a lot of product developers, improved security posture of the platform - this is now paying off as deals are being won based on strong security posture
- Responded to market concerns on losses, pivoted to being cash flow and EBITDA positive - expecting this to materialise in Q4 FY23
- Reflected on US Strategy and the lack of traction, bleeding of marketing costs - Asia starting to fire made the pullout decision an easy one - focus finite resources on growth areas
- Park US for now - may come back later
- The Nov 2022 restructure is a key step against this pivot in direction - 30% roles cut in 1H, 2H is now operating on the leaner structure
- HR costs have settled down from 6M ago
CASH POSITION
- $9m cash
- Heavy cost spend on the technology stack has already occurred in the last 2 years - WSP will start leveraging this as customers scale from hereon
- Q3, expecting the cash to dip below $9m, but that will bounce back above $9m in Q4
- Have debt options which have not been pulled yet
- No Silicon Valley Bank impact - already have access to funds
COMPETITORS
- Twillio - a competitor but also a partner as it is used as a platform for specific WSP use cases, and hence, also gains transaction revenue for messages sent through the Twillio platform
- Main competitor is be-spoke in house solutions or companies that have no existing communications platform
- Do not see Microsoft or Google competing in this space
- CRM systems are inadvertently a “competitor”, by virtue of it being a tool which businesses communicate to its customers, but it not a direct competitor
- The ability to personalise the communications is a key feature and selling point, especially in the post Covid environment
- WSP believes it has only tapped 5% of the TAM, which in itself, is hard to define
IMPORTANCE OF RESELLERS
- Telco’s eg. Telstra, Singtel are a key customer channel as they help WSP get in front of the Customer
- Telco’s directly benefit from this from the subsequent carrier and messaging charges - this is a good barrier to entry for competitors as they are unable to get to the customer after WSP is locked in, in partnership with the Telco
- This explains why marketing spend was heavily focused on the US as there are no similar US Telco resellers
AI
- Have AI capabilities eg. Chat bots, Talk bots, back-end system AI for load balancing etc
- Have scaled by investment in AI
- Exploring ChatGPT - fits well with the platform and is a real opportunity
KEY RISKS TODAY
- In the short term, focus is on getting to Positive Cash Flow Target - this does require revenue growth, over and above cost management
- Management view of the share price - stay the course against stated Free Cash Flow and EBITDA positive objectives as a lot of the internal housekeeping/hard yards on cost management, org restructure and technology stack improvements have already been executed - time is needed to deliver the revenue growth results which leverage off these efforts
- Not in the market for a capital raising
- Not sure that there is much that the market is misunderstanding of WSP other than the fact that retail investors might not truly understand the product/platform and what it does for enterprises
- WSP as a target for acquisition given current share price:
- “Jerome does not want to sell” - passionate founder
- Lots more organic value to be delivered
- Shareholder register “well structured”
INVESTMENT THESIS
- WSP feels like it is on the cusp of robust revenue growth:
- Pullout from US allows focus on growing and scaling ANZ and Asia regions - makes good sense to divert finite resources to areas that have greatest potential and return
- Hard work and large capital spend is completed - org restructure, cost optimisation, technology stack improvements
- Revenue growth is being delivered via the reseller channels - showing good signs of delivery, particularly in Asia
- Need time to leverage the investments to deliver the customer and revenue growth
- Requirements for big cash investments in the next 12-24 months does not appear high given the housekeeping done and the pullout of the US
- Robust, scalable platform, sticky customers, low spend Telco reseller marketing channel, more focused organisation, pivot towards EBITDA and Cash Flow Positive in Q4
- $9m (25%) of today’s market cap of ~$35m is in cash
- Almost at 52-week low
RISKS
- Do not meet Q4 targets of either EBITDA or Cash Flow - unlikely given current confidence, trajectory and focus
- Founder sells out or WSP is acquired - little incentive to do so given low share price vs possible organic growth and huge available TAM
- Cyber security incident - risks appear mitigated from 2021 product focus, but requires ongoing spend and focus to upkeep
- Customer churn stays above 5% target - another red flag