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CE

CFN Enterprises Inc. (CNFN)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 2018 revenue was $5.99M, up 0.6% YoY; gross margin fell to 60.7% from 74.1% YoY due to prior-year hosting credits, driving an operating loss of $0.65M and net loss of $1.26M .
  • Overages rose 34.9% YoY (higher platform usage), while license revenue declined 5.7% YoY; Journey bookings “outpaced traditional” CAKE bookings, with initial wins including a global bank and a leading online retailer .
  • Management expects 2H18 margin expansion as Journey’s higher-margin revenue scales and hosting capacity costs are mitigated; international marketing launch targets Europe and Asia .
  • Liquidity improved via a new $7.0M Beedie credit facility (initial $4.5M advance used to retire Agility and promissory notes); covenant package adds minimum gross margin and adjusted EBITDA tests .

What Went Well and What Went Wrong

What Went Well

  • Journey momentum and bookings: “sales bookings already outpacing traditional bookings,” with wins including “one of the world’s largest international banks” and a leading online retailer .
  • Usage growth: overage fees +34.9% YoY indicates greater adoption and usage of the SaaS platform .
  • International expansion and diversification: launched Journey internationally; FY17 had 43% revenue outside the U.S.; “no single customer representing more than 5% of total revenue” .

What Went Wrong

  • Margin compression: gross margin fell to 60.7% from 74.1% YoY largely due to $860K hosting credit benefit in Q1 2017 that did not recur, cutting gross profit by 17.5% YoY .
  • Profitability deterioration: operating swung to a ($0.65M) loss vs $0.23M income in Q1 2017; net loss widened to ($1.26M); interest expense and financing amortization increased with higher borrowings .
  • License revenue down: software license revenue declined 5.7% YoY to $4.65M as mix shifted and average revenue per customer fell 3% YoY .

Financial Results

MetricQ1 2017Q3 2017Q4 2017Q1 2018
Revenue ($USD Millions)$5.957 $6.066 $6.088 (derived from FY2017 $24.105 − 9M2017 $18.017) $5.993
Cost of Revenue ($USD Millions)$1.545 $2.750 $2.406 (derived from FY2017 $9.067 − 9M2017 $6.661) $2.354
Gross Profit ($USD Millions)$4.411 $3.316 $3.682 (derived from FY2017 $15.038 − 9M2017 $11.356) $3.639
Gross Margin %74.1% 54.7% (computed from $3.316/$6.066) 60.5% (computed from $3.682/$6.088) 60.7%
Operating Income ($USD Millions)$0.226 ($0.390) ($0.600) (derived from FY Operating loss $1.105 − 9M Operating loss $0.505) ($0.654)
Net Income ($USD Millions)($0.055) ($0.696) ($1.056) (derived from FY Net loss $2.424 − 9M Net loss $1.368) ($1.256)
Diluted EPS ($USD)($0.00) ($0.01) N/A($0.02)

Segment revenue mix:

MetricQ1 2017Q1 2018
License ($USD Millions)$4.934 $4.651
Overage ($USD Millions)$0.797 $1.076
Other ($USD Millions)$0.225 $0.266

KPIs:

KPIQ1 2017Q1 2018
Avg # of Customers (YoY change)—+3%
Avg Revenue per Customer (YoY change)—−3%
Geography Mix: US / Europe / Other (%)59% / 21% / 20% 60% / 20% / 20%
Weighted Avg Shares (Millions)65.262 65.940
Overage Fees (YoY change)—+34.9%
Gross Margin %74.1% 60.7%

Consensus vs Actual (Q1 2018):

MetricQ1 2018 ActualQ1 2018 Consensus
Revenue ($USD Millions)$5.993 N/A (SPGI retrieval unavailable)
Diluted EPS ($USD)($0.02) N/A (SPGI retrieval unavailable)
Adjusted EBITDA ($USD Millions)($0.462) N/A (SPGI retrieval unavailable)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin %FY 2018None providedManagement expects progressive improvement through 2018 as higher-margin Journey revenue scales and hosting costs are mitigated Qualitative (no range)
RevenueFY 2018None providedFuture revenues expected to be driven by Journey adoption, organic growth, and international expansion Qualitative (no range)
SG&AFY 2018None provided“Continue to keep SG&A costs in control” Qualitative (no range)
Segment/Journey revenueFY 2018None providedHigh-margin Journey revenue expected to be “meaningful” beginning in 2H18 Qualitative (no range)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2018)Trend
Journey platform rolloutQ3 2017: enhanced architecture; brand advertiser focus; pipeline build . Q4 2017: late-Q3 launch; strong sales pipeline; added global media company in Jan 2018 .Bookings outpaced traditional CAKE; added a global bank and leading online retailer; international marketing launch .Accelerating commercialization
Gross margin/hosting costsQ3 2017: hosting fees increased to support usage; gross profit down YoY . Q4 2017: gross profit declined with platform migration costs .GM 60.7% vs 74.1% YoY; prior-year hosting credits drove YoY decline; mitigation planned .Near-term headwind; expected improvement
International expansionQ3 2017: global mix rising; other regions up . Q4 2017: 43% revenue outside U.S. .International Journey marketing launch; targeting Europe and Asia .Broadening footprint
Financing/liquidityQ3 2017: working capital deficit; reliance on credit facilities . Q4 2017: secured $7.0M Beedie facility (Jan 2018) .$4.5M initial advance; retired Agility and $1.0M promissory notes; added covenants incl. minimum GM and adjusted EBITDA .Improved liquidity, tighter covenants
Legal/regulatory/managementQ3 2017: McCollum settlement obligations continuing .CTO resignation reported (Feb 26, 2018) .Organizational adjustments

Management Commentary

  • CEO: “We are excited with the progress… since our launch of Journey… target a much larger market opportunity… high-profile customer wins… new sales bookings that have already outpaced those of our traditional platform… translate into meaningful growth in high margin revenue… primarily beginning in the second half of the year” .
  • CFO: “Journey… offers intrinsically higher gross margins than our traditional CAKE products. We expect this to drive progressive improvement in company-wide margins throughout 2018 as we continue to keep SG&A costs in control” .
  • FY17 context: “Journey… represents a significantly larger market opportunity… confident that revenue derived from Journey… will enable… progressive improvement… beginning in Q2 2018” .

Q&A Highlights

  • No public earnings call transcript was found in the document catalog; management’s commentary is available via the press release and 10-Q filings .

Estimates Context

  • Consensus comparison is not included due to S&P Global access limitations during retrieval; estimates could not be fetched at the time of analysis. Management did not provide numerical guidance ranges in Q1 2018, so any model updates should reflect margin headwinds from hosting costs and potential 2H18 uplift from Journey .

Key Takeaways for Investors

  • Mix shift: Overages +34.9% YoY suggest higher platform usage even as license revenue declined; monitor whether Journey accelerates total revenue growth in 2H18 .
  • Margin trajectory: Near-term gross margin pressure from non-recurring hosting credits (2017) and elevated hosting fees; management expects improvement as Journey scales and cost mitigation takes hold .
  • Execution focus: Journey bookings outpacing traditional CAKE with marquee wins (global bank, leading retailer); conversion of bookings to recognized revenue will be key for margin expansion .
  • Liquidity and covenants: Beedie facility bolsters liquidity but adds covenants (minimum GM, adjusted EBITDA, debt/MRR); monitor covenant compliance against margin recovery timelines .
  • International growth: Early Journey marketing push in Europe/Asia aligns with FY17’s 43% non-U.S. mix—international traction could further support growth .
  • Customer diversification: No single customer >5% of revenue reduces concentration risk; broadened pipeline supports sustainability .
  • Operating leverage path: SG&A control alongside higher-margin Journey revenue is central to the path back to profitability; watch adjusted EBITDA and gross margin trends quarterly .