Hootsuite hits cash-flow milestone – but an IPO not necessarily in the offing

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One year ago, Canadian tech darling Hootsuite Media Inc. CEO Ryan Holmes said that two things had to happen before his Vancouver-based social-media management firm could go public: It needed to hire a chief financial officer and get cash flows to break-even level.

The company ticked off the CFO box last fall, hiring Open Text Corp.'s chief accounting officer Sujeet Kini for the job after a lengthy search. Then the company tightened its belt on costs, including trimming its ranks by 100 people.

Now, Hootsuite says cash flow is in the black: Mr. Holmes said in an interview with The Globe and Mail that the company hit the milestone in June, one quarter ahead of its goal.

So does that mean an IPO is in the offing? Not necessarily.

"The main message … is we now can basically control our own destiny," said the 41-year-old CEO. (In a memo to employees Thursday he said, "It's business as usual" after reaching the milestone.) Of the possible financing choices before it – growing with existing resources, raising money from public or private markets or selling out – "I can't commit to any one of those scenarios," he said. Selling out is "not something I'm courting for," though if "somebody steps up with a cheque that's just too large to say no," Mr. Holmes said, "I would need to take [shareholder] wishes into account. … There is always a number."

At one point, Hootsuite was at the front of the line of anticipated IPOs, commanding a private market valuation of $1-billion (U.S.), making it a so-called "unicorn" in Silicon Valley-speak. An IPO seemed even likelier after Ottawa-based retail-software firm Shopify Inc. went public in a successful offering in May, 2015, at a multibillion-dollar valuation.

Meanwhile, other private Canadian tech firms have joined Hootsuite as short to medium-term IPO candidates, including Real Matters, Pointclickcare, Shoes.com and Vision Critical. But all plans are in low gear until the IPO market returns to health. There have been recent signs of a possible thaw south of the border after about eight months of little activity.

Investors have edged away from private software companies that pushed aggressively to grow revenues at all costs, favouring those with an eye on the bottom line. Mr. Holmes said "it was absolutely the right" plan for his company to curtail spending and sacrifice revenue growth in favour of cash flows. "If you can provide very nice growth with [positive cash flow], that is what the market is rewarding right now. So that is what we're looking at, fantastic growth coupled with cash management."

What that means for the company's growth is unclear. Mr. Holmes wouldn't disclose how fast the topline is growing, though he defined "fantastic growth" as a range of between 20 per cent and 40 per cent, with anything over 40 per cent coming "at a very high cost." (Industry sources speculate the company's revenue growth is closer to 20 per cent than 40.) He also identified future revenue growth of 30 per cent annually as "very manageable."

Hootsuite, which enables corporate and other users to monitor social-media activity using its platform, experienced surging growth following its well-timed launch at the dawn of the Facebook and Twitter age. The company, hatched out of Mr. Holmes's digital-services agency Invoke, now has close to 1,000 staff, up from 70 in 2012, and its revenues top $100-million as it counts more than 14 million users and 2,500 enterprise customers, including more than 80 per cent of the Fortune 1000. Along the way it has raised close to $250-million (U.S.) in venture capital.