Tiny Ltd. (TNYZF) Q2 2026 Earnings Call Transcript

Good morning, and welcome to the Tiny Limited Second Quarter 2026 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 would like to ask a question during this time, simply press star 1, the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. 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 would 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 future-oriented financial information regarding TINI and its business, and disclosure regarding possible expectations, events, conditions, or results that are based on information currently available to management, which indicate management's expectation of TINI's future growth, results of operations, business performance, and opportunities. Such statements are made as of this date hereof, and TINI assumes no obligation to update or revise them, except as required by applicable securities laws. Such statements involve significant risks, uncertainties, and assumptions, 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 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 be considered along with, but not as an alternative to, measures calculated in accordance with IFRS. I would like to now turn the call over to the executive team from Tiny for today's earnings call.

Good morning, everyone. Austin here, and thanks for joining us. I'll start with what changed during the quarter and what we are focused on now. I'll then hand it to Mike to go through the detailed financials before we open it up for Q&A. When I moved into the CEO role, I wanted a clear view of where each business stood. We spent significant time going through each operating business, tested the forecasts, and reviewed the cost base. That work led to cost reductions, simplifying our overall operating structure, and some difficult decisions, most of which was focused within WeCommerce and Creative Market. That is always difficult, but it gives us a more honest starting point. That reset was important, but the quarter was not only about that. Revenue was $51.6 million and adjusted EBITDA of $10.6 million, a 21% margin. AOR reached approximately $70 million, up 32% year over year, which now accounts for 34% of our total revenue, largely driven by the Serato acquisition. This gives our business substantially better visibility than we had a year ago. Serato shows the kind of business we want more of. 70% of it is revenue is recurring and the team continues to build upon its strong core product and partner network. At Metalab, QTSI was affected by Project Start timing, which we saw pick up substantially in June and continued into Q3. Letterboxd stayed on pace with its strong growth and ended the quarter with approximately 31 million members. We also know where the revenue pressure is within the organization which we noted at the top of being e-commerce and creative market a combination of both more competitive markets and a tougher e-commerce and market both of which we are navigating through on the balance sheet side we repaid 2. million of debt in q2 and another 1.6 million after the end of the quarter currency changes affected part of that progress and leverage ended the quarter rate 2.8 times from here our focus is on continual improvement turning more of our earnings into cash flow and lowering leverage alongside we'll continue to look at potential monetizations within the portfolio we're logical while continuing to add high quality businesses to tiny to grow the business over time mike i'll hand it over to you okay thanks austin I'll get into some of the financial results now in a bit more detail.

Starting with revenue, the Q2 2026 total revenue was $51.6 million. This was a 3% increase over Q2 of 2025 and also represented a 3% increase when measured on a constant currency basis. looking at the highlights of the composition software and apps grew from 18 million up to 22.4 million primarily driven by serato digital services revenue came in at 16 million this was down from 19.6 million in q2 of 2025 it really does reflect a tough comparable q2 2025 ladies and gentlemen on the creative platform revenue came in at 11.5 million versus 10.3 million a year ago this benefited from a significant contract win at dribble in the quarter on an ltm basis revenue was 208.7 million this was up nine percent from the comparable period of 192.4 million. The LTM digital services comparison was also impacted by the divestiture of Frosty 8020 and Z1, along with that outperformance in the first half of 2025 that we've noted. Again, we expect a strong second half based on momentum in Q2 of 2026. Moving on to recurring revenue. This is a key metric we track closely as a proxy for the durability and quality of our revenue base. In Q2 2026, it reached $17.4 million, up 32% from $13.2 million in Q2 of 2025. Serato is the primary driver here, and as Austin noted, a significant amount of that revenue comes from subscriptions. We're also actively investing in a product roadmap and partnerships to sustain that growth year over year. On an LTM basis, recurring revenue was $69.8 million versus $42.8 million a year ago. This importantly points to greater annualized recurring revenue for the business overall, which now stands at $69.6 million, growing 32% year over year. The ARR trajectory reinforces our strategic focus. We want a larger portion of Tiny's consolidated revenue-based predictable and subscription-based where it makes strategic sense, helping to underpin a strong long-term outlook. Moving on to adjusted EBITDA and adjusted EBITDA margin. The adjusted EBITDA for Q2 of 2026 was $10.6 million. This represented a margin of 21%. On an LTM basis, adjusted EBITDA was $38.2 million. This was up from $35.3 million in the Q2 2025 LTM period. Performance, again, largely driven by Serato. Dribble contract wins and the continued cost discipline across the portfolio, which we have referenced and will continue to help us drive margin going forward. LTM margin expanded from 18% to 19%, a modest but meaningful improvement. Given the significant cost rationalizations that we implemented at the end of Q2 of 2026, we expect this will drive further margin improvement going forward. On a related topic, as we have continued to focus on enhancing our disclosure, we have added segmented EBITDA to our disclosure framework for the quarter. as part of our ongoing commitment to provide further operation and financial clarity where possible. Further detail is provided in the MD&A. Moving on to free cash flow and free cash flow per share. Again, as a reminder, in Q1 of 2026, we enhanced some of our disclosure to report free cash flow and free cash flow per share on an attributable basis. Again, we believe this gives investors a clearer and more meaningful picture of the capital generated by our underlying portfolio net of debt service obligations. LTM free cash flow was $13.4 million or 46 cents per share compared to $18.6 million or 70 cents per share in the Q2 2025 period. The change in cash flow primarily reflects the timing of contract-related payments, income tax installments, and some working capital movements near the end of the quarter. Moving on to the fund. Recall, this is a separate vehicle from our consolidated results, and we report this on an unaudited basis to give investors further visibility into the portfolio. Q2 fund revenue was in U.S. dollars $13.2 million. This was a 15% increase over Q2 of 2025. LTM fund revenue was $55.5 million, again in U.S. dollars, versus $48.4 million in the previous period. Tiny's NAV for the fund was $46.4 million Canadian, which represented a 4% increase from year-end. Distributions to Tiny from the fund were again strong. At $0.5 million in Q2, and have equated to $2.8 million on an LTM basis. Key portfolio highlights in the fund include Letterboxd, surpassing $30.7 million registered members. This number is up 185% since her acquisition in September of 2023. matina our yerba mate brand now leads the whole foods energy category with 1.8 times the volume of the second place contributor turning out of the balance sheet as of june 30th 2026 senior debt outstanding was 105.9 million and our total cash and cash equivalents were 31.6 million, slightly up from $29.3 million at year-end. While our net debt to adjusted EBITDA ratio does stand just slightly above our target range of 2 to 2.5, we are making progress. Austin noted some debt repayments both in the quarter and following the quarter, and it continues to show that we remain committed to debt repayment. This is a priority within capital allocation. And importantly, as we think about the balance sheet, we have no pending maturities. We've maintained some capital structure flexibility through the extension of the convertible debenture offer. And overall, our objective here is to ensure we have the proper capital structure in place to continue on the longer-term journey of capital allocation. Now turning to our roadmap, we have four strategic priorities that are on track. profitable growth, capital structure optimization, momentum within tiny fund, and disciplined capital allocation. These are all important as we think about our day-to-day operations. In summary, Q2 was a quarter of continued execution against these strategic priorities, alongside a disciplined look at the portfolio and the value through an ongoing asset review. We're well positioned to head into Q3 and we look forward to updating you again on our progress next quarter. With that we should turn it over to questions.

We will now begin the question and answer session. If you would like to ask a question please press star one to raise your hand. To withdraw your question press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. As a reminder, if you would like to ask a question, please press star one to raise your hand. Your first question comes from the line of Richard Baldry with Roth Capital. Richard, your line is open. Please go ahead.

Great. Thanks. Can you maybe talk a little bit more in depth about the review of the e-commerce operation um i'm sort of curious was that there's a pretty large bad debt hit of about 4.1 million in the quarter was that related to that and sort of you can talk about the scale of the costs that you think you'll and operational sort of savings you think you've identified exiting q2 thanks thanks richard good morning it's mike um awesome we'll touch on some of the discussion points around we commerce and then i will uh finish off with uh a couple points around clarification of a couple points on the financials so i guess separating those two questions one was around uh the bad debt the

other is just the broader um right down on the intangibles uh side so we took a pretty clear view of the forecast that were previously put in place and i think the first six months of this year have definitely introduced more uncertainty in what that looks like but i think what we do know is shopfi remains the core platform for net new merchants we play a really big role within that third-party ecosystem we're quite confident that will be a place where merchants go to over the long term and we are navigating through the changes within that end market at this moment um we think we have taken out a very substantial amount of cost this quarter

which we'll start to see more of the flow through refrex um over the coming quarters but we do feel quite confident about that business over time that we are navigating through a bit of choppy waters on it like you want to touch on the bad debt it was uh in a different area of the business yeah exactly and it was in two different areas richard there was a minority investment that we had that was on the balance sheet from a number of years ago that was written down uh based on performance um and then there was uh some review of some age receivables in another area of the business so those two items were not necessarily related to e-commerce um but certainly a lot of the things you'd see um in the statements uh this quarter around severance costs as an example that was uh more related to e-commerce as part of this structural reset that we we undertook uh in that

area and then you switch over to serato and sort of the growth areas what do you think the the sustainability or extensibility of those those growth drivers are near term and then maybe broadly speaking you talk about the efficiencies you're still seeing from you know bringing some ai type uh optimization tools into service internally thanks sure so on serato um we're continuing to see a shift of younger gen leaning towards i'd say digital digital products like djing than they

might have historically to something like a piano and so that has provided a really nice base of continual expansion of the customer base as well as we have two core subscription tiers within that business one of which has substantially more features and we're continuing to see more and more customers move to that side so we're seeing a really nice base of net new ads as well as upgrades into our higher tier plan so we feel quite quite positive about the outlook of that business um i'm sorry what was the the second part of the question there good question about you know using ai tools internally to improve efficiencies operations so we have seen a meaningful improvement on that front i'd say there was some part of which flow through on on cost reductions that we're able to see this quarter i'd say more specifically though So that brings us key data and information across the entire organization in a much more centralized way that helps our decision making at Parent. I think we have a long way to still go on what's possible with the tools that are evolving almost every day at this point. But we are seeing a very positive impact. Mike, anything else you want to add on that?

I think it's a focal point for us, right? It's a focal point. Richard, as you mentioned, in the services business and digital services, it's a focal point for the team at Serato in terms of creating operational efficiencies in their design and engineering work. And we're also, you know, employing a number of different tools across the organization to enhance our reporting time, real-time reporting. So there's been a number of ways that we've been able to utilize, you know, the AI as an opportunity, right? utilize AI tools as an opportunity versus it necessarily being a threat. We're adapting also in certain areas of the business as well, but we're certainly finding ways where we can be a more efficient organization overall.

It might be a difficult question to answer, but just broadly speaking, how much do you think of Austin's time spent on really portfolio optimization sort of thing about M&A type work versus the operations of the underlying companies? and is that shifting so the backdrop is you know are you more focused on working the portfolio or the operating entities and and how is that going to evolve thanks i think it's partly an evolving topic i think from the earlier days of tiny what worked really really well is being a decentralized organization and part of the changes we made this quarter

was going back to being that where head office can really be focused on net new acquisitions that said there was a number of areas where it made sense for us to spend time this quarter on making adjustments which we highlighted but i think we want to be in a place where head office is really focused on acquisitions having the right leaders run the operating companies and really trusting them to do so and so that's the high level viewpoint of kind of where we're going. Great. Thanks.

As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Rob Young with Canaccord Genuity. Rob, your line is open. Please go ahead.

Just a question. A lot of expenses in the quarter, but it looks like you repaid debt in the quarter and then noted that you made some voluntary repayment after the quarter. So I'm just curious about your intent in the near term around deployment of capital. Is the pay down of the debt going to take on a bigger priority now or is that just a one-time thing?

Hey Rob, good morning. It's Mike. Thanks for the the question i mean i think look i think we can consistently say you know over the last six quarters that we've been focused on this um you know we're trying to manage you know um this against the earnings base this as a matter of uh you know capital deployment um as you know we have an ncib open we've been buying back some shares because you know there's been probably some opportunities there where the the shares are undervalued in the market so it's really a matter of sort of how do we balance, you know, this against other opportunities to deploy capital, right? And certainly there will be instances where we can be voluntarily repaying a, you know, smaller amounts of debt. And I think those should be highlighted because, you know, we're taking the steps to ensure that we're managing those balances, right? So again, it's going to be evaluated against all priorities. um again if we could find if we were able to find a you know an acquisition we want to be also positioned to do that right and so you know managing the balance sheet to ensure that we're positioned for the next opportunity uh is also really important so um you know it's certainly been a primary objective uh in the last six quarters i don't think that's going to change because we want to make sure that uh you know we're we're we're managing the balance sheet properly and that we're properly positioned for the next opportunity, the next larger opportunity for a deal when it comes our way.

Small question. You noted the indirect interest in SpaceX through XAI through Metalab Ventures Fund I'm just curious about how that's accounted for.

Is that at book value or is that current value or is there an opportunity to monetize that for to the benefit of tiny's balance sheet and then i'll pass mine thanks yeah thanks it and it's it's it's evolving rob uh you know it's a new situation right um you know the genesis of the metalab venture fund has traditionally been a partnership fund where you know they've done work with uh you know growth clients um made some investments themselves uh out of that fund on there's obviously some success now coming uh from that um is there an opportunity for some of that some of those dollars to flow back to tiny uh absolutely um again the decisions will be made at the appropriate time uh to whether or not to monetize those shares and then and ultimately you know what to do with those use of proceeds but yes there will be an opportunity for some of those dollars to flow back to tiny we we are we are clear that you know we are only a 14.1 percent uh made a partner in that fund right so you know there are other there are other partners in that fund who will also benefit from this um but it's great to see that there's you know again good return on capital that's been allocated right um we're showing some there and then the metal adventure fund we're obviously showing that with opportunities in the in the in the tiny fund um and this is part of the you know greater uh situation of of ensuring that we're you know allocating capital into unique opportunities uh and creating return for our shareholders so uh there will be some return but again we want to make sure that you know we're also you know we're also understanding that it's it's somewhat modest as it relates to flow back to the tiny shareholders because we are only a 14 percent uh a holder a gp holder in that fund or excuse the lp holder in that fund okay understood thanks for taking the question we have reached the end of the q a session This concludes today's call.

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