TON Strategy Co Q3 FY2022 earnings call

Management Statement and Operational Highlights

• NASDAQ Share Price Compliance: Received formal confirmation from NASDAQ for an additional 180-day period to regain share price compliance, eliminating immediate delisting or reverse split concerns.
• Capital Requirements: Raised $4 million via registered direct offering and $5 million via unsecured debt. Implemented cost reduction plan, cutting expenses across all areas, reducing operational cash burn to approximately $1 million per month.
• MARKET.live Performance: Launched in end-July 2022. Acquired 76,000 shoppers in first 90 days, average returning registered shopper rate 49%, average order value ~$98, conversion rate ~24%. Over 350 shoppable recordings with nearly 20,000 views. Selected Alantra as strategic advisory firm.
• SaaS Business: Expanded sales enablement tools, moved to flat rate pricing for clients to stabilize revenue.
• Professional Sports Unit: Added several professional sports teams, including Pittsburgh Pirates, with MLB approval for league-wide use.

Segment Performance

• SaaS Recurring Subscription Revenue: Approximately $1.9 million in Q3 2022, a modest increase vs prior year. Non-SaaS digital revenue was $0.2 million in Q3 2022 vs $0.5 million prior year. Total digital revenue in Q3 2022 was $2 million vs $2.4 million prior year. For the nine months ended September 30, 2022, SaaS recurring subscription revenue was $5.8 million (19% increase vs prior year), total digital revenue was $6.3 million (6% increase vs prior year).
• Cost of Revenue: $0.7 million in Q3 2022 (32% improvement vs prior year), $2.5 million for nine months ended September 2022 (26% improvement vs prior year).
• Research and Development Expenses: $1.4 million in Q3 2022 (61% improvement vs prior year), $4.3 million for nine months ended September 2022 (55% improvement vs prior year).
• General and Administrative Expenses: $7 million in Q3 2022 (6% increase vs prior year), $20.6 million for nine months ended September 2022 (improvement of $1.1 million vs prior year).
• Modified EBITDA: Improved by $1.7 million (25%) in Q3 2022 vs prior year, and by $4.9 million (24%) for nine months ended September 2022 vs prior year.

Guidance

• Expect significant revenue contributions from MARKET.live platform in 2023.
• Anticipate results of new flat rate pricing model in Q4 2022 and 2023.
• Expect trend of more reps joining direct sales companies to reverse, driving SaaS revenue growth.

Risks

• Economic meltdown and market volatility impacting capital markets and share prices.
• NASDAQ share price compliance risk if unable to regain compliance within the additional 180-day period.
• Dependence on successful execution of MARKET.live growth strategies and cost management.

Question and Answer

Q: With cost cutting, impact on MARKET festivals and marketing budget impact on MARKET?

A: It will not impact at all running the MARKET festivals. Cut in marketing budget won't affect MARKET, but greater marketing spend would drive better performance.

Q: When will MARKET.live scale in revenue?

A: Expect to see scaling in revenue by Q2 2023, with gross merchandise value (GMV) as a leading indicator.

Q: Client churn in SaaS business and enterprise customer count?

A: Churn within sales reps impacts revenue, but flat rate pricing stabilizes. Churn rate historically less than 8%.

Q: Impact of cost cutting on SaaS customer acquisition?

A: Pipeline is strong, cost cutting won't have material impact in near-term; need to live with restricted capital markets.

Q: International sports team opportunities?

A: In discussions with European teams, sales cycle slow, will share news when ready.

Q: Market.live becoming household name and integration with Google?

A: Market.live is inevitable to be a household name; cut back on Outlook/Gmail integration to focus on Market.live.

Q: Influencers and creators courting MARKET.live?

A: Creators and influencers are being courted, with launches beginning this month, relying on them to promote.

Q: Strategic advisory firm Alantra and partnerships?

A: Alantra engaged to evaluate strategic opportunities, no specific partnerships to disclose yet.